CIR vs. S.C. JOHNSON AND SON, INC.

, and CA
June 25, 1999 Gonzaga-Reyes, J. Mica Maurinne M. Adao Topic: Doub e Ta!a"ion

/. %.

First, it sets out the res#ective rights to ta( of the state of source or situs and of the state of residence with regard to certain classes of income or ca#ital. Second, the state of source is given a full or limited right to ta( together with the state of residence. In this case, the treaties make it incum"ent u#on the state of residence to allow relief in order to avoid dou"le ta(ation.

SUMMARY: S.C. Johnson and Son, Inc entered into a license agreement with SC Johnson and Son USA. For the use of the trademark or technology, SC Johnson ( hil! was o"liged to #ay SC Johnson USA royalties "ased on a #ercentage of net sales and su"$ected the same to %&' withholding ta( on royalty. )ow, SC Johnson and Son filed with the International *a( Affairs +ivision (I*A+! of the ,I- a claim for refund of over#aid withholding ta( on royalties arguing that the .most favored nation. ta( rate of /0' on royalties as #rovided in the - 1US ta( treaty in relation to the - 12est 3ermany ta( treaty should "e a##lied. ,ICommissioner did not act on said claim for refund so a #etition for review was filed "efore the C*A. C*A ruled in favor of SC Johnson and Son. CA affirmed in toto. SC set aside C*A and CA rulings. Since the - 1US *a( *reaty does not give a matching ta( credit of %0 #ercent for the ta(es #aid to the hili##ines on royalties as allowed under the - 12est 3ermany *a( *reaty, SC Johnson cannot "e deemed entitled to the /0 #ercent rate granted under the latter treaty for the reason that there is no #ayment of ta(es on royalties under similar circumstances as re4uired "y the most favoured clause. +OCTRINE: *he #ur#ose international agreement, entered into for the avoidance of dou"le ta(ation (e.g. - 1US *a( *reaty!, is to reconcile the national fiscal legislations of the contracting #arties in order to hel# the ta(#ayer avoid simultaneous ta(ation in two different $urisdictions. *he a##arent rationale for doing away with dou"le ta(ation is of encourage the free flow of goods and services and the movement of ca#ital, technology and #ersons "etween countries, conditions deemed vital in creating ro"ust and dynamic economies International $uridical dou"le ta(ation is defined as the im#osition of com#ara"le ta(es in two or more states on the same ta(#ayer in res#ect of the same su"$ect matter and for identical #eriods. *o eliminate international $uridical dou"le ta(ation, a ta( treaty resorts to several methods.

*here are two methods of relief 5 the e(em#tion method and the credit method. In the e(em#tion method, the income or ca#ital which is ta(a"le in the state of source or situs is e(em#ted in the state of residence, although in some instances it may "e taken into account in determining the rate of ta( a##lica"le to the ta(#ayer6s remaining income or ca#ital. 7n the other hand, in the credit method, although the income or ca#ital which is ta(ed in the state of source is still ta(a"le in the state of residence, the ta( #aid in the former is credited against the ta( levied in the latter. *he "asic difference "etween the two methods is that in the e(em#tion method, the focus is on the income or ca#ital itself, whereas the credit method focuses u#on the ta( FACTS: S.C. Johnson and Son, Inc., a domestic cor#oration organi8ed and o#erating under the hili##ine laws, entered into a license agreement with SC Johnson and Son, United States of America (USA!, a non1resident foreign cor#oration "ased in the U.S.A. #ursuant to which the SC Johnson ( hil! was granted the right to use the trademark, #atents and technology owned "y the latter including the right to manufacture, #ackage and distri"ute the #roducts covered "y the Agreement and secure assistance in management, marketing and #roduction from SC Johnson and Son, U. S. A. *he said 9icense Agreement was duly registered with the *echnology *ransfer ,oard of the ,ureau of atents, *rade :arks and *echnology *ransfer. For the use of the trademark or technology, SC Johnson ( hil! was o"liged to #ay SC Johnson USA royalties "ased on a #ercentage of net sales and su"$ected the same to %&' withholding ta( on royalty #ayments which SC Johnson ( hil! #aid for the #eriod covering July /;;% to :ay /;;< in the total amount of /,=0<,>>< 7n 7cto"er %;, /;;<, SC Johnson ( hil! filed with the International *a( Affairs +ivision (I*A+! of the ,I- a claim for refund of over#aid withholding ta( on royalties arguing that the .most favored nation. ta( rate of /0' on royalties as #rovided in the - 1US ta( treaty in relation to the - 12est 3ermany ta( treaty should "e a##lied

Commissioner did not act on said claim for refund so a #etition for review was filed "efore the C*A. C*A ruled in favor of SC Johnson and Son. CA affirmed in toto.. ISSUE: Is SC Johnson and Son, USA entitled to the .most favored nation. ta( rate of/0' on royalties as #rovided in the - 1US ta( treaty in relation to the - 1 2est 3ermany ta( treaty? RULING@ )7. RATIO: *he issue is a"out the inter#retation of Article /< (%! ("! (iii! of the - 1US *a( *reaty regarding the rate of ta( to "e im#osed "y the hili##ines u#on royalties received "y a non1resident foreign cor#oration. *he #rovision states insofar as #ertinent that 5 /! -oyalties derived "y a resident of one of the Contracting States from sources within the other Contracting State may "e ta(ed "y "oth Contracting States. %! Aowever, the ta( im#osed "y that Contracting State shall not e(ceed. a! In the case of the United States, /& #ercent of the gross amount of the royalties, and "! In the case of the hili##ines, the least of@ (i! %& #ercent of the gross amount of the royaltiesB (ii! /& #ercent of the gross amount of the royalties, where the royalties are #aid "y a cor#oration registered with the hili##ine ,oard of Investments and engaged in #referred areas of activitiesB and (iii! "#e o$es" ra"e o% &#i ippine "a! "#a" 'ay be i'posed on roya "ies o% "#e sa'e (ind paid under si'i ar circu's"ances "o a residen" o% a "#ird )"a"e. -es#ondent S. C. Johnson and Son, Inc. claims that on the "asis of the 4uoted #rovision, it is entitled to the concessional ta( rate of /0 #ercent on royalties "ased on Article /% (%! ("! of the - 13ermany *a( *reaty which #rovides@ (Since hil im#osed /0' ta( rate on 3ermany for the use of a trademark, then hil should also im#osed same rate to the US! Unlike the - 1US *a( *reaty, the - 13ermany *a( *reaty allows a ta( credit of %0 #ercent of the gross amount of such royalties against 3erman income and cor#oration ta( for the ta(es #aya"le in the hili##ines on such royalties where the ta( rate is reduced to /0 or /& #ercent under such treaty. As CI- correctly argued, the ta(es u#on royalties under the - 1US *a( *reaty are not #aid under circumstances similar to those in the - 12est 3ermany *a( *reaty since there is no #rovision for a %0 #ercent matching credit in the former

convention and #rivate res#ondent cannot invoke the concessional ta( rate on the strength of the most favored nation clause in the - 1US *a( *reaty. Under the foregoing #rovision of the - 12est 3ermany *a( *reaty, the hili##ine ta( #aid on income from sources within the hili##ines is allowed as a credit against 3erman income and cor#oration ta( on the same income. In the case of royalties for which the ta( is reduced to /0 or /& #ercent according to #aragra#h % of Article /% of the - 12est 3ermany *a( *reaty, the credit shall "e %0' of the gross amount of such royalty. *o illustrate, the royalty income of a 3erman resident from sources within the hili##ines arising from the use of, or the right to use, any #atent, trade mark, design or model, #lan, secret formula or #rocess, is ta(ed at /0' of the gross amount of said royalty under certain conditions. *he rate of /0' is im#osed if credit against the 3erman income and cor#oration ta( on said royalty is allowed in favor of the 3erman resident. *hat means the rate of /0' is granted to the 3erman ta(#ayer if he is similarly granted a credit against the income and cor#oration ta( of 2est 3ermany. *he clear intent of the .matching credit. is to soften the im#act of dou"le ta(ation "y different $urisdictions. *he - 1US *a( *reaty contains no similar .matching credit. as that #rovided under the - 12est 3ermany *a( *reaty. Aence, the ta( on royalties under the - 1US *a( *reaty is not #aid under similar circumstances as those o"taining in the - 12est 3ermany *a( *reaty. *herefore, the .most favored nation. clause in the - 12est 3ermany *a( *reaty cannot "e availed of in inter#reting the #rovisions of the - 1US *a( *reaty. (See doctrine! In negotiating ta( treaties, the underlying rationale for reducing the ta( rate is that the hili##ines will give u# a #art of the ta( in the e(#ectation that the ta( given u# for this #articular investment is not ta(ed "y the other country. *hus CI- correctly o#ined that the #hrase .royalties #aid under similar circumstances. in the most favored nation clause of the US1- *a( *reaty necessarily contem#lated .circumstances that are ta(1related In the case at "ar, the state of source is the hili##ines "ecause the royalties are #aid for the right to use #ro#erty or rights, i.e. trademarks, #atents and technology, located within the hili##ines. *he United States is the state of residence since the ta(#ayer, S. C. Johnson and Son, U. S. A., is "ased there. Under the - 1US *a( *reaty, the state of residence and the state of source are "oth #ermitted to ta( the royalties, with a restraint on the ta( that may "e collected "y the state of source. Furthermore, the method em#loyed to give relief from dou"le ta(ation is the allowance of a ta( credit to citi8ens or residents of the United States (in an a##ro#riate amount "ased u#on the ta(es #aid or accrued to

the hili##ines! against the United States ta(, "ut such amount shall not e(ceed the limitations #rovided "y United States law for the ta(a"le year. 3iven the #ur#ose underlying ta( treaties and the rationale for the most favoured nation clause, the concessional ta( rate of /0 #ercent #rovided for in the - 1 3ermany *a( *reaty should a##ly only if the ta(es im#osed u#on royalties in the - 1US *a( *reaty and in the - 13ermany *a( *reaty are #aid under similar circumstances. *his would mean that SC Johnson must #rove that the - 1US *a( *reaty grants similar ta( reliefs to residents of the United States in res#ect of the ta(es im#osa"le u#on royalties earned from sources within the hili##ines as those allowed to their 3erman counter#arts under the - 13ermany *a( *reaty. *he reason for construing the #hrase .#aid under similar circumstances. as used in Article /< (%! ("! (iii! of the - 1US *a( *reaty as referring to ta(es is anchored u#on a logical reading of the te(t in the light of the fundamental #ur#ose of such treaty which is to grant an incentive to the foreign investor "y lowering the ta( and at the same time crediting against the domestic ta( a"road a figure higher than what was collected in the hili##ines. As stated earlier, the ultimate reason for avoiding dou"le ta(ation is to encourage foreign investors to invest in the hili##ines 5 a crucial economic goal for develo#ing countries. *he goal of dou"le ta(ation conventions would "e thwarted if such treaties did not #rovide for effective measures to minimi8e, if not com#letely eliminate, the ta( "urden laid u#on the income or ca#ital of the investor. *hus, if the rates of ta( are lowered "y the state of source, in this case, "y the hili##ines, there should "e a concomitant commitment on the #art of the state of residence to grant some form of ta( relief, whether this "e in the form of a ta( credit or e(em#tion. 7therwise, the ta( which could have "een collected "y the hili##ine government will sim#ly "e collected "y another state, defeating the o"$ect of the ta( treaty since the ta( "urden im#osed u#on the investor would remain unrelieved. If the state of residence does not grant some form of ta( relief to the investor, no "enefit would redound to the hili##ines, i.e., increased investment resulting from a favora"le ta( regime, should it im#ose a lower ta( rate on the royalty earnings of the investor, and it would "e "etter to im#ose the regular rate rather than lose much1needed revenues to another country. It "ears stress that ta( refunds are in the nature of ta( e(em#tions. As such they are regarded as in derogation of sovereign authority and to "e construed s"ric"issi'i *uris against the #erson or entity claiming the e(em#tion. *he "urden of #roof is u#on him who claims the e(em#tion in his favor and he must "e a"le to $ustify his claim "y the clearest grant of organic or statute law. SC Johnson is claiming for a refund of the alleged over#ayment of ta( on royaltiesB however, there is nothing on record to su##ort a claim that the ta( on royalties under the - 1US *a( *reaty is #aid under similar circumstances as the ta( on royalties under the - 12est 3ermany *a( *reaty.

2AC-CF7-C, for all the foregoing, the instant #etition is 3-A)*C+. *he decisions of C*A and CA are here"y SC* ASI+C. S7 7-+C-C+.

COMMISSIONER OF CUSTOMS vs CTA and CAMPOS RUEDA CORPORATION

Ju y +1, 19,Me encio-.errera, J. Mica Maurinne M. Adao Topic: Due &rocess / ause

SUMMARY: Cam#os -ueda Cor#oration (C-C! had % shi#ments of tungsol flashers and a shi#ment sealed "eams from the US for which Im#ort Cntries were filed. In its invoices, it declared D0.== as unit #rice for the tungsol flasher and D0.;0E as unit #rice for the sealed "eams. Aowever ,ureau of Customs re1 a##raised all the shi#ments and assessed the tungol flashers at D/.0E #er #iece and the sealed "eams at D/.<& #er #iece "ased on FAlert )otices. sent "y Finance Attaches a"road. C-C #aid its ta(es and duties "ut filed #rotests for the refund of the e(cess ta( #aid due to the re1a##raisal. Collector of Customs denied the #rotests. Commissioner of Customs affirmed in toto. 7n a##eal, C*A ordered the grant of the refund of over#aid customs duties to C-C. SC affirmed. *he re1 a##raisal of the su"$ect shi#ments or articles im#orted were "ased on the alleged #iece of document known as .Alert )otice. which was not even #resented "y Customs to the Court. *he re1a##raisal made, therefore, can "e faulted with ar"itrariness in disregard of the standard of due #rocess to which all governmental action should conform to im#ress u#on it the stam# of validity

DOCTRINE: Administrative #roceedings are not e(em#t from the o#eration of due #rocess re4uirements one of which is that a finding "y an administrative tri"unal should "e su##orted "y su"stantial evidence #resented at the hearing or at least contained in the records or disclosed to the #arties affected. Cam#os -ueda Cor#oration (C-C! had % shi#ments of tungsol flashers and a shi#ment sealed "eams from the US for which Im#ort Cntries were filed. In its invoices, it declared D0.== as unit #rice for the tungsol flasher and D0.;0E as unit

#rice for the sealed "eams. Aowever ,ureau of Customs re1a##raised all the shi#ments and assessed the tungol flashers at D/.0E #er #iece and the sealed "eams at D/.<& #er #iece "ased on FAlert )otices. sent "y Finance Attaches a"road. C-C #aid the increased ta(es and duties amounting to /E,&;/.00 and &%,%%=.00 for the tungsol flasher shi#ments and =G,&%&.00 for the sealed "eams, "ut filed rotests claiming a refund of said amounts. From the denial of the rotests "y the Collector of Customs, C-C a##ealed to the Commissioner of Customs, which affirmed in "o"o the consolidated +ecision a##ealed from on the ground that .Alert )otices are sent "y Finance Attaches in their official ca#acity as such officials, aware of their "ounden duty to kee# the +e#artment of Finance a"reast with the current #rices of commodities for the im#osition of correct amount of duties and ta(es on ta(a"le im#ortations.. C-C elevated the case to C*A which ordered the grant of the refund of over#aid customs duties to C-C. Aence, this #etition. ISSUC@ 2hether or not the re1a##raisal made "y the Commissioner of Customs was in accordance with Section %0/ of the *ariff and Customs Code of the hili##ines (-A )o. /;<G!, as amended "y + )os. <> and />=>? -U9I)3@ )o, due #rocess was violated. *here was no com#liance with the re4uirement to #u"lish from time to time of the lists of the home consum#tion values, and the FAlert )oticesH were never #resented to court or disclosed to the #arties affected. -A*I7@ Under Section %0// of the *ariff and Customs Code ,the home consum#tion value or #rice under this section shall "e the value or #rice declared in the consular, commercial, trade or sales invoice. 2here there e(ists a reasona"le dou"t as to the value or #rice of the im#orted article declared in the entry, the correct dutia"le value of the article shall "e ascertained from the re#orts of the -evenue Attache or Commercial Attache (Foreign *rade romotion Attaches #ursuant to -A &>== or other hili##ine di#lomatic officers and from such other information that may "e availa"le to the ,ureau of Customs.
1

From the data thus gathered, the Commissioner of Customs shall ascertain and esta"lish the home consum#tion values of articles e(#orted to the hili##ines and shall #u"lish such lists of values from time to time. 2hen the dutia"le value #rovided for in the #receding #aragra#hs cannot "e ascertained for failure of the im#orter to #roduce the documents mentioned in thesecond #aragra#h, or where there e(ists a reasona"le dou"t as to dutia"le value of the im#orted article declared in the entry, it shall "e the domestic wholesale selling #rice of such or similar article in :anila or other #rinci#al markets in the hili##ines on the date the duty "ecomes #aya"le on the article under a##raisement, in the usual wholesale 4uantities and in the ordinary course of trade, minus 5 (a! *wenty (%0! #er cent thereof for e(#enses and #rofitsB and ("! +uties and ta(es #aid thereon. Clearly, the dutia"le value of an im#orted article is "ased on the home consum#tion value or #rice as declared in the consular, commercial, trade or sales invoice. ,ut where there is a reasona"le dou"t, the correct dutia"le value shall "e ascertained from the re#orts of the -evenue Attache or Commercial Attache and from such other information that may "e availa"le to the ,ureau of Customs. Also re4uired "y the statute is the #u"lication from time to time of the lists of the home consum#tion values. In the corres#onding Im#ort Cntries, C-C 4uoted the #rices of the im#orted merchandise as declared in the consular invoices and as re4uired "y Section %0/. -easona"le dou"t regarding the declarations was not shown to have e(isted such that recourse to re#orts from commercial attaches or other information "ecame necessary. )either was there com#liance with the re4uirement in Section %0/ regarding #u"lication of the lists of dutia"le values of im#orted articles from time to time. *he re1a##raisal made "y the ,ureau of Customs was "ased on .Alert )otices. received from Finance Attaches a"road, which, however, were not disclosed, neither to C-C nor to res#ondent Court. 2hile it is true that a##raisers of the ,ureau of Customs are given am#le leeway in determining the correct customs duties under Section />0& of the *ariff and Customs Code, Section %0/ of the same Code, which #rescri"es the criteria for the determination of the dutia"le values of im#orted articles, has not "een com#lied with. 2hat is more, administrative #roceedings are not e(em#t from the o#eration of due #rocess re4uirements one of which is that a finding "y an administrative tri"unal should "e su##orted "y su"stantial evidence #resented at the hearing or at least contained in the records or disclosed to the #arties affected. In this case the .Alert )otices. on which #etitioner "ased its rea##raisal were not disclosed during the #roceedings "efore the ,ureau of Customs nor #resented in

Section %0/. 0asis o% Du"iab e 1a ue. 5 *he dutia"le value of an im#orted article su"$ect to an ad valorem rate of duty shall "e based on t e o!e "ons#!$t%on &a'#e o( $(%"e (e(cluding internal e(cise ta(es! of same, like or similar articles, as "ought and sold or offered for sale freely in the usual wholesale 4uantities in the ordinary course of trade, in the #rinci#al markets of the country from where e(#orted on the date of e(#ortation to the hili##ines, or where there is none on such date, then on the home consum#tion value or #rice nearest to the date of e(#ortation including the value of all containers, coverings andIor #ackings of any kind and all other costs, charges and e(#enses incident to #lacing the article in a condition ready for shi#ment to the hili##ines, #lus ten (/0! #er cent of such home consum#tion value or #rice.

evidence "efore res#ondent Court. *he re1a##raisal made "y Customs, therefore, can "e faulted with ar"itrariness in disregard of the standard of due #rocess to which all governmental action should conform to im#ress u#on it the stam# of validity 2AC-CF7-C, the etition for -eview on certiorari is denied, and the a##ealed $udgment is here"y affirmed. )o costs. S7 7-+C-C+.

A memorandum1circular of a "ureau head could not o#erate to vest a ta(#ayer with shield against $udicial action. For there are no vested rights to s#eak of res#ecting a wrong construction of the law "y the administrative officials. FACTS: /. hili##ine ,ank of Communications ( ,C7:! filed its 4uarterly income ta( returns for the first and second 4uarters of /;E&. It #aid a total income ta( of &, 0/=, ;&> #esos. *he ta(es due were settled "y a##lying ,C7:Js ta( credit memos. %. 2hen it filed its Annual Income *a( -eturns for the year1ended +ec. </, /;E&, ,C7: declared a net loss, there"y showing no ta( lia"ility. For the succeeding year, ending +ec. </, /;E=, ,C7: also re#orted a net loss, and thus declared no ta( #aya"le. <. ,ut during the a"ovementioned two years, ,C7: earned rental income from leased #ro#erties. *he lessees remitted to the ,I- the withholding credita"le ta(es in /;E& and /;E=. >. ,C7: re4uested the Commissioner of Internal -evenue for a ta( credit of &, 0/=, ;&> #esos, re#resenting over#ayment of ta(es in the first and second 4uarters of /;E&. ,C7: also filed a claim for refund of credita"le ta(es withheld "y the lessees from #ro#erty rentals. &. ending the investigation of the CI-, ,C7: instituted a etition for -eview "efore the Court of *a( A##eals (C*A! on )ovem"er /E, /;EE. *he C*A denied the re4uest of ,C7: for a ta( refund or credit in the sum of &, %;;, G>;.;& #esos, on the ground that it was filed "eyond the two1year reglementary #eriod. 9ikewise, ,C7:Js claim for refund in /;E= was denied on the assum#tion that it was automatically credited "y ,C7: against its ta( #ayment in the succeeding year. A :otion for -econsideration was denied "y C*A. =. A #etition for review was filed "efore the Court of A##eals. *he CA affirmed the C*AJs resolution. ISSUES: /. +id #rescri#tion set in to "ar ,C7: from claiming ta( refund and ta( credits? %. +id the CA err in affirming C*AJs decision denying its claim for refund (ta( over#aid in /;E=!, "ased on mere s#eculation? RATIO: /. KCS %. )7. RULING: /. ,C7:Js main argument is that its claims for refund and ta( credits are not yet "arred "y #rescri#tion "ecause of -evenue :emorandum Circular )o. G1E&, which #rovides that over#aid income ta(es are

P)COM &. CIR

2, January 1999 Jus"ice 2uisu'bing .o'er

SUMMARY: hili##ine ,ank of Communications ( ,C7:! filed its 4uarterly income ta( returns for the /st and %nd 4uarters of /;E&, re#orted #rofits, and #aid the total income ta(. Aowever, ,C7: suffered losses so when it filed its Annual Income *a( -eturns for the year1ended +ec. </, /;E& and /;E=, it re#orted a net loss and declared no ta( #aya"le for the year. +uring these two years (/;E& and /;E=!, ,C7: earned rental income from leased #ro#erties. etitioner re4uested the Commissioner of Internal -evenue (CI-! for a ta( credit re#resenting the over#ayment of ta(es in the first and second 4uarters of /;E&. ,C7: also filed a claim for refund of credita"le ta(es withheld "y their lessees from #ro#erty rentals in /;E& and /;E=. ,C7: instituted a etition for -eview "efore the Court of *a( A##eals (C*A!. *he C*A denied the re4uest of ,C7: for a ta( refund or credit on the ground that it was filed "eyond the two1year reglementary #eriod #rovided for "y law. *he #etitioner6s claim for refund in /;E= was also denied on the assum#tion that it was automatically credited "y ,C7: against its ta( #ayment in the succeeding year. etitionerJs :otion for -econsideration was denied. ,C7: filed a #etition for review with the CA, which affirmed C*A6s resolution. *he Su#reme Court ruled in favor of CI-. *he administrative issuance which changed the reglementary #eriod from two years to ten years was contrary to law. DOCTRINE: -evenue memorandum1circulars are considered administrative rulings (in the sense of more s#ecific and less general inter#retations of ta( laws! which are issued from time to time "y the Commissioner of Internal -evenue. It is widely acce#ted that the inter#retation #laced u#on a statute "y the e(ecutive officers, whose duty is to enforce it, is entitled to great res#ect "y the courts. )evertheless, such inter#retation is not conclusive and will "e ignored if $udicially found to "e erroneous. *hus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to a##ly and im#lement.

not covered "y the two1year #rescri#tive #eriod under the *a( Code and that ta(#ayers may claim refund or ta( credits for the e(cess 4uarterly income ta( with the ,I- within /0 years under Article //>> of the Civil Code. CI- argues that the two1year #rescri#tive #eriod for filing ta( cases concerning income ta( #ayments of Cor#orations is reckoned from the date of filing of the Final Ad$usted Income *a( -eturn., which is generally done on A#ril /& following the close of the calendar year. Since the Final Ad$usted Income *a( -eturn of ,C7: for /;E& was su##osed to "e filed on A#ril /&, /;E=, ,C7: had only until A#ril /&, /;EE to seek relief from court. 2hen the case was filed "efore the C*A on )ovem"er /E, /;EE, it was filed "eyond the reglementary #eriod. *he Su#reme Court decided in favor of CI-. *he rela(ation of revenue regulations "y -:C G1E& is not warranted "ecause it disregards the two1year #rescri#tive #eriod set "y law. Claims for refund or ta( credit should "e e(ercised within the time fi(ed "y law "ecause the ,I- "eing an administrative "ody enforced to collect ta(es, its functions should not "e delayed "y incidental matters. +ue #rocess of law under the Constitution does not re4uire $udicial #roceedings in ta( cases. Section %<0% of the )ational Internal -evenue Code #rovides that the ta(#ayer may file claim for refund or credit with the CI- within % years after #ayment of ta(, "efore any suit in C*A is commenced. *he #rescri#tive #eriod is com#uted from the time of the filing of Ad$ustment -eturn and final #ayment of the ta( for the year. 2hen the Acting Commissioner of Internal -evenue issued -:C G1E&, changing the #rescri#tive #eriod of two years to ten years on claims of e(cess 4uarterly income ta( #ayments, such circular created a clear inconsistency with the #rovision of Sec. %<0 of )I-C. In so doing, the ,I- did not sim#ly inter#ret the lawB rather it legislated guidelines contrary to the statute #assed "y Congress. Courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to a##ly and im#lement. *he State cannot "e #ut in esto##el "y the mistakes or errors of its officials or agents. *he nullification of -:C )o. G1E& is an administrative inter#retation which is not in harmony with Sec. %<0 of /;GG )I-C. Ais
2

inter#retation could not "e given weight for to do so would, in effect, amend the statute. Art. E of the Civil Code recogni8es $udicial decisions, a##lying or inter#reting statutes as #art of the legal system of the country. ,ut administrative decisions do not en$oy that level of recognition. A memorandum1circular of a "ureau head could not o#erate to vest a ta(#ayer with shield against $udicial action. For there are no vested rights to s#eak of res#ecting a wrong construction of the law "y the administrative officials and such wrong inter#retation could not #lace the 3overnment in esto##el to correct or overrule the same. As re#eatedly held "y this Court, a claim for refund is in the nature of a claim for e(em#tion and should "e construed in s"ric"issi'i *uris against the ta(#ayer. %. *he Su#reme Court res#ects the finding of fact "y the Court of A##eals L FFinally, as to the claimed refund of income ta( over1#aid in /;E= 5 the Court of *a( A##eals, after e(amining the ad$usted final cor#orate annual income ta( return for ta(a"le year /;E=, found out that #etitioner op"ed "o app y %or au"o'a"ic "a! credi". *his was the "asis used (3is-a3is the fact that the /;EG annual cor#orate ta( return was not offered "y the #etitioner as evidence! "y the C*A in concluding that #etitioner had indeed availed of and a##lied the automatic ta( credit to the succeeding year, hence it can no longer ask for refund, as to MsicN the two remedies of refund and ta( credit are alternative.H *he SC is "ound "y the findings of fact "y the C*A and CA, there "eing no showing of gross error or a"use on their #art. DISPOSITI*E: 2AC-CF7-C, the, #etition is here"y +C)IC+, *he decision of the Court of A##eals a##ealed from is AFFI-:C+, with C7S*S against the #etitioner. DISSENTING OPINION@ )7)C. CONCURRING OPINION@ )7)C.

S%son, J(. &. An" eta

Ju y 24,19,5 6ernando, /J )ai

Sec. %<0. Reco3ery o% "a! erroneous y or i ega y co ec"ed. 5 )o suit or #roceeding shall "e maintained in any court for the recovery of any national internal revenue ta( hereafter alleged to have "een erroneously or illegally assessed or collected, or of any #enalty claimed to have "een collected without authority, or of any sum alleged to have "een e(cessive or in any manner wrongfully collected, until a claim for refund or credit has "een duly filed with the CommissionerB "ut such suit or #roceeding may "e maintained, whether or not such ta(, #enalty, or sum has "een #aid under #rotest or duress. In any case, no such suit or #roceedings shall "egun after the e(#iration of two years from the date of #ayment of the ta( or #enalty regardless of any su#ervening cause that may arise after #aymentB rovided however, *hat the Commissioner may, even without a written claim therefor, refund or credit any ta(, where on the face of the return u#on which #ayment was made, such #ayment a##ears clearly to have "een erroneously #aid.

SUMMARY: Antero Sison Jr. filed this case for declaratory relief or #rohi"ition #roceeding against ,I- acting commissioner Ancheta, challenging the validity of Section / of ,atas am"ansa ,lg. /<& alleging that he would "e unduly discriminated against "y the im#osition of higher rates of ta( u#on his income arising from the e(ercise of his #rofession and that they are o##ressive and ca#ricious. SC u#held the validity of the , /<& Sison Jr has not made out a case since allegations lack factual foundation to show the ar"itrary character

of the assailed #rovision as well as on due #rocess, e4ual #rotection and uniformity. DOCTRINE: *he #ower to ta(, an inherent #rerogative has to "e availed of to assure the #erformance of vital state functions. It is the source of the "ulk of #u"lic funds. *a(es "eing the life "lood of the government, their #rom#t and certain availa"ility is of the essence. As Justice :alcolm asserted F*he #ower to ta( is an attri"ute of sovereignty. It is the strongest of all #owers of the governmentH.. *here are restrictions set forth "y the Constitution. ,oth due #rocess and e4ual #rotection clauses may #ro#erly "e invokedto invalidate a revenue measure. FACTS: Antero Sison Jr. filed this case for declaratory relief or #rohi"ition #roceeding against ,I- acting commissioner Ancheta, challenging the validity of Section / of ,atas am"ansa ,lg. /<& which amends Section %/ of the )I-C /;GG #roviding for rates of ta( on citi8ens or residents on (a! ta(a"le com#ensation income, ("! ta(a"le net income, (c! royalties, #ri8es, and other winnings, (d! interest from "ank de#osits and yield or any other monetary "enefit from de#osit su"stitutes and from trust fund and similar arrangements, (e! dividends and share of individual #artner in the net #rofits of ta(a"le #artnershi#, (f! ad$usted gross income. Sison alleges that he would "e unduly discriminated against "y the im#osition of higher rates of ta( u#on his income arising from the e(ercise of his #rofession through that im#osed u#on fi(ed income or salaried individual ta(#ayers. Ae asserts that they are ar"itrary amounting to class legislation, o##ressive and ca#ricious. ISSUE: +ON Se"t%on , o- )P )'.. ,/0 1 %" %!$oses a %. e( ta2 (ate on ta2ab'e net %n"o!e de(%&ed -(o! b#s%ness o( $(o-ess%on t an on "o!$ensat%on %s "onst%t#t%ona''3 %n-%(!4 NO5 SC ruled that "ecause the field of state activity has assumed a much wider sco#e, there is need for more revenues. *he #ower to ta(, an inherent #rerogative has to "e availed of to assure the #erformance of vital state functions. It is the source of the "ulk of #u"lic funds. *a(es "eing the life "lood of the government, their #rom#t and certain availa"ility is of the essence. As Justice :alcolm asserted F*he #ower to ta( is an attri"ute of sovereignty. It is the strongest of all #owers of the governmentH. ,ut the #ower to ta( is not unconfined. *here are restrictions set forth "y the Constitution. ,oth due #rocess and e4ual #rotection clauses may #ro#erly "e invoked, as #etitioner does in this case, to invalidate a revenue measure. If it were otherwise, there would "e truth to the /E0< dictum of Justice :arshall that the #ower to ta( involves the #ower to destroy. *his dictum was "rushed away "y one stroke of Justice AolmesJ s #en@ the #ower to ta( is not the #ower to destroy while this court sits. 7n ar"itrariness, the SC said that mere allegation does not suffice. *here must "e a factual foundation of such constitutional taint. Considering that Sison, Jr. would condemn such a #rovision as void on its face, he has not made out a case.

2here due #rocess and e4ual #rotection clauses are invoked, considering that they are not fi(ed rules "ut "road standards, there is a need of #roof. A"sent such showing, #resum#tion of validity must #revail a.!7) +ue #rocess +ue #rocess clause may "e invoked where a ta(ing statute is so ar"itrary that it finds no su##ort in the Constitution. An e(am#le of clear a"use of #ower is confiscation of #ro#erty or where the assailed ta( measure is "eyond the $urisdiction of the state, or is not for a #u"lic #ur#ose, or, in case of a retroactive statute is so harsh and unreasona"le, it is su"$ect to attack on due #rocess grounds. a.! 7) C4ual rotection 2hen the assailed act is in the e(ercise of the #olice #ower or eminent domain, the a##lica"le standard is that the act far from "eing ins#ired "y the attainment of the common weal was #rom#ted "y the s#irit of hostility, or at the very least, discrimination that finds no su##ort in reason. In terms of "urden or charges, those that fall within a class should "e treated in the same fashion, whatever restrictions cast on some in the grou# e4ually "inding on the rest. *his a##lies as well to ta(ation measures. C4ual #rotection is ins#ired "y the no"le conce#t of a##ro(imating the Ideal of the laws "enefits "eing availa"le to all and the affairs of men "eing governed "y that serene and im#artial uniformity, which is of the very essence of the Idea of law. Aowever, as said "y Justice Frankfurter@ .*he e4uality at which the 6e4ual #rotection6 clause aims is not a disem"odied e4uality. *he Fourteenth Amendment en$oins 6the e4ual #rotection of the laws,6 and laws are not a"stract #ro#ositions. *hey do not relate to a"stract units A, , and C, "ut are e(#ressions of #olicy arising out of s#ecific difficulties, address to the attainment of s#ecific ends "y the use of s#ecific remedies. *he Constitution does not re4uire things which are different in fact or o#inion to "e treated in law as though they were the same.. Aence the constant reiteration of the view that classification if rational in character is allowa"le. In 9ut8 O. Araneta, J.,.9. -eyes held .at any rate, it is inherent in the #ower to ta( that a state "e free to select the su"$ects of ta(ation, and it has "een re#eatedly held that 6ine4ualities which result from a singling out of one #articular class for ta(ation, or e(em#tion infringe no constitutional limitation. a.! 7) Uniformity In hili##ine *rust Com#any v. Katco, Justice 9aurel said that when re4uirement of uniformity is met when the ta( o#erates with the same force and effect in every #lace where the su"$ect may "e found. *he rule of uniformity does not call for #erfect uniformity or #erfect e4uality, "ecause this is hardly attaina"le.. *he #ro"lem of classification did not #resent itself in that case. It did not arise until ;years later, when the SC held@ .C4uality and uniformity in ta(ation means that all ta(a"le articles or kinds of #ro#erty of the same class shall "e ta(ed at the same rate. *he ta(ing #ower has the authority to make reasona"le and natural classifications for #ur#oses of ta(ation. As clarified "y Justice

*uason, where .the differentiation. com#lained of .conforms to the #ractical dictates of $ustice and e4uity. it .is not discriminatory within the meaning of this clause and is therefore uniform.. *here is 4uite a similarity then to the standard of e4ual #rotection for all that is re4uired is that the ta( .a##lies e4ually to all #ersons, firms and cor#orations #laced in similar situation.. SC said that what misled #etitioner is his failure to take into consideration the distinction "etween a ta( rate and a ta( "ase. *here is no legal o"$ection to a "roader ta( "ase or ta(a"le income "y eliminating all deducti"le items and at the same time reducing the a##lica"le ta( rate. *a(#ayers may "e classified into different categories. In the case of the gross income ta(ation em"odied in , /<&, the, discerni"le "asis of classification is the susce#ti"ility of the income to the a##lication of generali8ed rules removing all deducti"le items for all ta(#ayers within the class and fi(ing a set of reduced ta( rates to "e a##lied to all of them. *a(#ayers who are reci#ients of com#ensation income are set a#art as a class. As there is #ractically no overhead e(#ense, these ta(#ayers are e not entitled to make deductions for income ta( #ur#oses "ecause they are in the same situation more or less. 7n the other hand, in the case of #rofessionals in the #ractice of their calling and "usinessmen, there is no uniformity in the costs or e(#enses necessary to #roduce their income. It would not "e $ust then to disregard the dis#arities "y giving all of them 8ero deduction and indiscriminately im#ose on all alike the same ta( rates on the "asis of gross income. *here is am#le $ustification then for the , /<& to ado#t the gross system of income ta(ation to com#ensation income, while continuing the system of net income ta(ation as regards #rofessional and "usiness income DISPOSITI*E: Pet%t%on %s d%s!%ssed -o( (/! lack of factual foundation to show the ar"itrary character of the assailed #rovisionB (%! the force of controlling doctrines on due #rocess, e4ual #rotection, and uniformity in ta(ation and (<! the reasona"leness of the distinction "etween com#ensation and ta(a"le net income of #rofessionals and "usinessman certainly not a sus#ect classification

under #rotest, "y 7rmoc Sugar. 7rmoc Sugar assailed the constitutionality of the ordinance for "eing violative of the e4ual #rotection clause and the rule of uniformity of ta(ation, aside from "eing an e(#ort ta( for"idden under Section %%EG of the -evised Administrative Code. CFI u#held the constitutionality of the ordinance, hence this a##eal. SC reversed and declared the challenged ordinance unconstitutional. *he ordinance violates the e4ual #rotection clause for it ta(es only centrifugal sugar #roduced and e(#orted "y the 7rmoc Sugar Com#any, Inc. and none other.

DOCTRINE: 6e $a 3s. )a as@ *he e4ual #rotection clause a##lies only to #ersons or things identically situated and does not "ar a reasona"le classification of the su"$ect of legislation, and a classification is reasona"le where (/! it is "ased on su"stantial distinctions which make real differencesB (%! these are germane to the #ur#ose of the lawB (<! the classification a##lies not only to #resent conditions "ut also to future conditions which are su"stantially identical to those of the #resentB (>! the classification a##lies only to those who "elong to the same class.

7n January %;, /;=>, the :unici#al ,oard of 7rmoc City #assed 7rdinance )o. >, Series of /;=>, im#osing .on any and all #roductions of centrifugal sugar milled a" "#e 9r'oc )ugar /o'pany, :nc., in 7rmoc City a munici#al ta( e4uivalent to one #er centum (/'! #er e(#ort sale to the United States of America and other foreign countries.. ayments for said ta( were made, under #rotest, "y 7rmoc Sugar Com#any, Inc. 7n June /, /;=>, 7rmoc Sugar Com#any, Inc. filed "efore CFI of of 9eyte, with service of a co#y u#on the Solicitor 3eneral, a com#laint against the City of 7rmoc as well as its *reasurer, :unici#al ,oard and :ayor, alleging that the afore1stated ordinance is unconstitutional for "eing violative of the e4ual #rotection clause (Sec. /M/N, Art. III, Constitution! and the rule of uniformity of ta(ation (Sec. %%M/N!, Art. OI, Constitution!, aside from "eing an e(#ort ta( for"idden under Section %%EG of the -evised Administrative Code. It further alleged that the ta( is neither a #roduction nor a license ta( which 7rmoc City under Section /&1kk of its charter and under Section % of -e#u"lic Act %%=>, otherwise known as the 9ocal Autonomy Act, is authori8ed to im#oseB and that the ta( amounts to a customs duty, fee or charge in violation of

ORMOC SUGAR COMPANY, INC., vs. THE TREASURER OF ORMOC CITY, et a'
6ebruary 1-, 194, 0engzon, J.&., J. Mica Maurinne M. Adao Topic: 78ua &ro"ec"ion / ause

SUMMARY: :unici#al ,oard of 7rmoc City #assed an ordinance im#osing .on any and all #roductions of centrifugal sugar milled a" "#e 9r'oc )ugar /o'pany, :nc., in 7rmoc City a munici#al ta( e4uivalent to one #er centum (/'! #er e(#ort sale to the United States of America and other foreign countries.. ayments for said ta( were made,

#aragra#h / of Section % of -e#u"lic Act %%=> "ecause the ta( is on "oth the sale and e(#ort of sugar. 7rmoc City (*reasurer, :unici#al ,ord and :ayor! asserted that the ta( ordinance was within city6s #ower to enact under the 9ocal Autonomy Act and that the same did not violate the afore1cited constitutional limitations. CFI rendered a decision that u#held the constitutionality of the ordinance and declared the ta(ing #ower of defendant chartered city "roadened "y the 9ocal Autonomy Act to include all other forms of ta(es, licenses or fees not e(cluded in its charter. Aence, this #etition. ISSUE: + et e( o( not t e o(d%nan"e $assed to %!$osed ta2 on e2$o(t sa'es o- O(!o" S#.a( Co!$an3 %s #n"onst%t#t%ona'6 RULING: Kes, it is unconstitutional for violating the e4ual #rotection clause as it only a##lies to 7rmoc Sugar Com#any and none other. RATIO: A##ellant 4uestions the authority of the defendant :unici#al ,oard to levy such an e(#ort ta(, in view of Section %%EG of the -evised Administrative Code which denies from munici#al councils the #ower to im#ose an e(#ort ta(. Section %%EG in #art states@ .It shall not "e in the #ower of the munici#al council to im#ose a ta( in any form whatever, u#on goods and merchandise carried into the munici#ality, or out of the same, and any attem#t to im#ose an im#ort or e(#ort ta( u#on such goods in the guise of an unreasona"le charge for wharfage use of "ridges or otherwise, shall "e void.. Su"se4uently, however, Section % of -e#u"lic Act %%=> effective June /;, /;&;, gave chartered cities, munici#alities and munici#al districts authority to levy for #u"lic #ur#oses $ust and uniform ta(es, licenses or fees. Anent the inconsistency "etween Section %%EG of the -evised Administrative Code and Section % of -e#u"lic Act %%=>, in ;in 0ay Mining /o. 3. Municipa i"y o% Ro!as, SC held the former to have "een re#ealed "y the latter. *he Constitution in the "ill of rights #rovides@ .. . . nor shall any #erson "e denied the e4ual #rotection of the laws.. (Sec. / M/N, Art. III! 6e $a 3s. )a as@ (see doctrine! A #erusal of the re4uisites instantly shows that the 4uestioned ordinance does not meet them, for it ta(es only centrifugal sugar #roduced and e(#orted "y the 7rmoc Sugar Com#any, Inc. and none other.

At the time of the ta(ing ordinance6s enactment, 7rmoc Sugar Com#any, Inc., it is true, was the only sugar central in the city of 7rmoc. Still, the classification, to "e reasona"le, should "e in terms a##lica"le to future conditions as well. *he ta(ing ordinance should not "e singular and e(clusive as to e(clude any su"se4uently esta"lished sugar central, of the same class as #laintiff, for the coverage of the ta(. As it is now, even if later a similar com#any is set u#, it cannot "e su"$ect to the ta( "ecause the ordinance e(#ressly #oints only to 7rmoc City Sugar Com#any, Inc. as the entity to "e levied u#on. Aowever, 7rmoc Sugar is not entitled to interestB on the refund "ecause the ta(es were not ar"itrarily collected (Collector of Internal -evenue v. ,inal"agan!. At the time of collection, the ordinance #rovided a sufficient "asis to #reclude ar"itrariness, the same "eing then #resumed constitutional until declared otherwise. 2AC-CF7-C, the decision a##ealed from is here"y reversed, the challenged ordinance is declared unconstitutional and the defendants1a##ellees are here"y ordered to refund the /%,0EG.&0 #laintiff1a##ellant #aid under #rotest. )o costs. So ordered.

*ILLEGAS *. HSUI CHIONG TSAI PAO

19-, 6ernandez, J Jayson /. Agui ar

SUMMARY: *he :unici#al ,oard of :anila enacted an ordinance, Sec. / of which #rohi"its aliens from "eing em#loyed or to engage or #artici#ate in any #osition or occu#ation or "usiness enumerated therein, whether #ermanent, tem#orary, or casual, without first securing an em#loyment #ermit from the :ayor of :anila and #aying the #ermit fee of h#. &0.00. Oiolation of the ordinance was considered a criminal violation. Aiu Chiong *sai ao Ao who was em#loyed in :anila filed a #etition with the CFI #raying for the issuance of the writ of #reliminary in$unction and restraining order to sto# the enforcement of the ordinance and to declare the ordinance null and void. 7ne of the grounds cited was that the 7rdinance violates the e4ual #rotection clause "y not making a distinction "etween useful and non1useful occu#ations. *he CFI declared the 7rdinance null and void. DOCTRINE: *he 7rdinance violates the e4ual #rotection clause "ecause, in im#osing the h#. &0.00 #ermit fee, it fails to consider valid su"stantial differences in situation among individual aliens who are re4uired to #ay it. Although the e4ual #rotection clause of the Constitution does not for"id classification, it is im#erative that the classification should "e "ased on real and su"stantial differences having a reasona"le relation to the

su"$ect of the #articular legislation. *he same amount of &0.00 is "eing collected from every em#loyed alien whether he is casual or #ermanent, #art time or full time or whether he is a lowly em#loyee or a highly #aid e(ecutive. FACTS: *he :unici#al ,oard of :anila enacted 7rdinance )o. =&<G in /;=E. Sec. / of said ordinance #rohi"its aliens from "eing em#loyed or to engage or #artici#ate in any #osition or occu#ation or "usiness enumerated therein, whether #ermanent, tem#orary, or casual, without first securing an em#loyment #ermit from the :ayor of :anila and #aying the #ermit fee of h#. &0.00. Oiolation of the ordinance was considered a criminal violation. Aiu Chiong *sai ao Ao who was em#loyed in :anila filed a #etition with the CFI #raying for the issuance of the writ of #reliminary in$unction and restraining order to sto# the enforcement of the ordinance and to declare the ordinance null and void. Aiu Chiong *sai ao Ao relied on the following grounds@ /. As a revenue measure im#osed on aliens em#loyed in the City of :anila, the 7rdinance is discriminatory and violative of the rule of uniformity in ta(ationB %. As a #olice #ower measure, it makes no distinction "etween useful and non1useful occu#ations, im#osing a fi(ed h#. &0.00 em#loyment #ermit, which is out of #ro#ortion to the cost of registration and it fails to #rescri"e any guide or limit to the action of the :ayor, thus violating the #rinci#le on non1delegation of legislative #owersB <. It is ar"itrary, o##ressive and unreasona"le, "eing a##lied only to aliens who are thus de#rived of their rights to life, li"erty and #ro#erty and therefore, violates the due #rocess and e4ual #rotection clauses of the Constitution. CFI: +eclared su"$ect ordinance void ISSUES: ,. +as t e s#b7e"t O(d%nan"e a ta28(e&en#e !eas#(e o( 1as %t $#(e'3 a (e.#'ato(3 !eas#(e6 A(.#!ent o- Ma3o( *%''e.as: 7rdinance )o. =&<G cannot "e declared null and void on the ground that it violated the rule on uniformity of ta(ation "ecause the rule on uniformity of ta(ation a##lies only to #urely ta( or revenue measures and that 7rdinance )o. =&<G is not a ta( or revenue measure "ut is an e(ercise of the #olice #ower of the state, it "eing #rinci#ally a regulatory measure in nature. 9. +as t e s#b7e"t O(d%nan"e &%o'at%&e o- t e E:#a' P(ote"t%on C'a#se6 /. +as t e s#b7e"t O(d%nan"e &%o'at%&e o- t e non4de'e.at%on do"t(%ne6 RATIO: /. *he contention that 7rdinance )o. =&<G is not a #urely ta( or revenue measure "ecause its #rinci#al #ur#ose is regulatory in nature has no merit. 2hile it is true that the first #art which re4uires that the alien shall secure an em#loyment #ermit from the :ayor involves the e(ercise of discretion and $udgment in the #rocessing and a##roval or disa##roval of a##lications for em#loyment #ermits and therefore is regulatory in character the second #art which re4uires the #ayment of &0.00 as em#loyee6s fee is not regulatory "ut a revenue measure. *here is no logic or $ustification in e(acting &0.00 from aliens who

have "een cleared for em#loyment. It is o"vious that the #ur#ose of the ordinance is to raise money under the guise of regulation. %. Kes. *he &0.00 fee is unreasona"le and violative of the e4ual #rotection clause "ecause it fails to consider valid su"stantial differences in situation among individual aliens who are re4uired to #ay it. Although the e4ual #rotection clause of the Constitution does not for"id classification, it is im#erative that the classification should "e "ased on real and su"stantial differences having a reasona"le relation to the su"$ect of the #articular legislation. *he same amount of &0.00 is "eing collected from every em#loyed alien whether he is casual or #ermanent, #art time or full time or whether he is a lowly em#loyee or a highly #aid e(ecutive. <. Kes. 7rdinance )o. =&<G does not lay down any criterion or standard to guide the :ayor in the e(ercise of his discretion. It has "een held that where an ordinance of a munici#ality fails to state any #olicy or to set u# any standard to guide or limit the mayor6s action, e(#resses no #ur#ose to "e attained "y re4uiring a #ermit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring u#on the :ayor ar"itrary and unrestricted #ower to grant or deny the issuance of "uilding #ermits, such ordinance is invalid, "eing an undefined and unlimited delegation of #ower to allow or #revent an activity per se lawful. RULING: etition for certiorari dismissedB CFI decision affirmed.

SHELL CO. *. *ANO

1955 &adi a, J Jayson /. Agui ar

SUMMARY: *he :unici#al Council of Cordova, rovince of Ce"u enacted 7rdinance )o. /0, Series of /;>G im#osing an annual ta( of h#. /&0.00 on occu#ation or e(ercise of a #rivilege of installation manager. Shell filed a suit for refund of the ta(es #aid on such 7rdinance. Shell alleged that such an 7rdinance was void for "eing discriminatory since there was no other #erson in the locality who e(ercises such FdesignationH or occu#ation. DOCTRINE: *he fact that there is no other #erson in the locality who e(ercises such a .designation. or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will "e a##lica"le to any #erson or firm who e(ercises such calling or occu#ation named or designated as .installation manager.. FACTS: *he :unici#al Council of Cordova, ordinances@ rovince of Ce"u enacted the following

/. 7rdinance )o. /0, Series of /;>=1 im#osing an annual ta( of h#. /&0.00 on occu#ation or e(ercise of a #rivilege of installation managerB %. 7rdinance )o. ;, Series of /;>G1 im#osing an annual ta( of h#. >0.00 for local de#osits in drums of com"usti"le and inflamma"le materials and an annual ta( of h#. %00.00 for tin can factoriesB <. 7rdinance )o. //, Series of /;>E1 im#osing an annual ta( of h#. /&0.00 on tin can factories having a ma(imum out#ut ca#acity of <0,000 tin cans. Shell filed a suit for the refund of the ta(es #aid on the ground that the said 7rdinances are void for "eing ultra vires. CFI: *he su"$ect 7rdinances are valid. ISSUES: ,. +as O(d%nan"e No. ;, Se(%es o- ,;<= &a'%d6 9. +as O(d%nan"e No. ,>, Se(%es o- ,;<? &a'%d6 a. It 1as "'a%!ed t at an @%nsta''at%on !ana.e(@ %s a des%.nat%on !ade b3 t e $'a%nt%-- and s#" des%.nat%on "annot be dee!ed to be @"a''%n.@ as de-%ned %n se"t%on ,=A o- t e Nat%ona' Inte(na' Re&en#e Code BCo!. A"t No. <??C, and t at t e %nsta''at%on !ana.e( e!$'o3ed b3 t e $'a%nt%-- %s a sa'a(%ed e!$'o3ee 1 %" !a3 not be ta2ed b3 t e !#n%"%$a' "o#n"%' #nde( t e $(o&%s%ons oCo!!on1ea't A"t No. <=9. b. It 1as a'so "'a%!ed t at t e o(d%nan"e %s d%s"(%!%nato(3 and ost%'e be"a#se t e(e %s no ot e( $e(son %n t e 'o"a'%t3 1 o e2e("%ses s#" @des%.nat%on@ o( o""#$at%on. /. +as O(d%nan"e No. ,,, Se(%es o- ,;<A &a'%d6 RATIO: /. Kes. It was contended that as the munici#al ordinance im#osing an annual ta( of >0 for .minor local de#osit in drums of com"usti"le and inflamma"le materials,. and of %00 .for tin factory. was ado#ted under and #ursuant to section %%>> of the -evised Administrative Code, which #rovides that the munici#al council in the e(ercise of the regulative authority may re4uire any #erson engaged in any "usiness or occu#ation, such as .storing com"usti"le or e(#losive materials. or .the conducting of any other "usiness of an unwholesome, o"no(ious, offensive, or dangerous character,. to o"tain a #ermit for which a reasona"le fee, in no case to e(ceed /0 #er annum, may "e charged, the annual ta( of >0 and %00 are unauthori8ed and illegal. Aowever, *he #ermit and the fee referred to may "e re4uired and charged "y the :unici#al Council of Cordova in the e(ercise of its regulative authority, whereas the ordinance which im#oses the ta(es in 4uestion was ado#ted under and #ursuant to the #rovisions of Commonwealth Act )o. >G%, which authori8es munici#al councils and munici#al district councils .to im#ose license ta(es u#on #ersons engaged in any occu#ation or "usiness, or e(ercising #rivileges in the munici#ality or munici#al district, "y re4uiring them to secure licenses at rates fi(ed "y the munici#al council or munici#al district council,. which shall "e $ust and uniform "ut not .#ercentage ta(es and ta(es on s#ecified articles.. %. 7rdinance )o. /0, Series of /;>= was valid.

a. Cven if the installation manager is a salaried em#loyee of the #laintiff, still it is an occu#ation .and one occu#ation or line of "usiness does not "ecome e(em#t "y "eing conducted with some other occu#ation or "usiness for which such ta( has "een #aid6 and the occu#ation ta( must "e #aid ."y each individual engaged in a calling su"$ect thereto.. And #ursuant to section /G; of the )ational Internal -evenue Code, .*he #ayment of . . . occu#ation ta( shall not e(em#t any #erson from any ta(, . . . #rovided "y law or ordinance in #laces where such . . . occu#ation is . . . regulated "y munici#al law, nor shall the #ayment of any such ta( "e held to #rohi"it any munici#ality from #lacing a ta( u#on the same . . . occu#ation, for local #ur#oses, where the im#osition of such ta( is authori8ed "y law.. ". *he fact that there is no other #erson in the locality who e(ercises such a .designation. or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will "e a##lica"le to any #erson or firm who e(ercises such calling or occu#ation named or designated as .installation manager.. <. Kes. 7rdinance )o. //, series of /;>E, which im#oses a munici#al ta( of /&0 on tin can factories having a ma(imum annual out#ut ca#acity of <0,000 tin cans which, according to the sti#ulation of facts, was a##roved "y the rovincial ,oard of Ce"u and the +e#artment of Finance, is valid and lawful, "ecause it is neither a #ercentage ta( nor one on s#ecified articles which are the only e(ce#tions #rovided in section /, Commonwealth Act )o. >G%. )either does it fall under any of the #rohi"itions #rovided for in section < of the same Act. RULING: CFI decision affirmed.

TIU *. CA
1999 &anganiban, J Jayson /. Agui ar

Sec. /%@ QQQ("! *he Su"ic S#ecial Cconomic Pone shall "e o#erated and managed as a se#arate customs territory ensuring free flow or movement of goods and ca#ital within, into and e(#orted out of the Su"ic S#ecial Cconomic Pone, as well as #rovide incentives such as ta( and duty1free im#ortations of raw materials, ca#ital and e4ui#ment. Aowever, e(#ortation or removal of goods from the territory of the Su"ic S#ecial Cconomic Pone to the other #arts of the hili##ine territory shall "e su"$ect to customs duties and ta(es under the Customs and *ariff Code and other relevant ta( laws of the hili##inesB (c! *he #rovision of e(isting laws, rules and regulations to the contrary notwithstanding, no ta(es, local and national, shall "e im#osed within the Su"ic S#ecial Cconomic Pone. In lieu of #aying ta(es, three #ercent (<'! of the gross income earned "y all "usinesses and enter#rises within the Su"ic S#ecial Cconomic Pone shall "e remitted to the )ational 3overnment, one #ercent (/'! each to the local government units affected "y the declaration of the 8one in #ro#ortion to their #o#ulation area, and other factors.

SUMMARY: Congress enacted -A G%%G which created Su"ic S#ecial Cconomic Pone. -esidents and "usinesses within the said 8one were given ta( and duty incentives. resident -amos issued C(ecutive 7rder ;G1A which #rovided that the Secured Area consisting of the fenced1in former Su"ic )aval ,ase shall "e the only com#letely ta( and duty1free area in the Su"ic S#ecial Cconomic Pone (SSCP!. *he #etitioners assail the validity of C7 ;G1A. *hey contend that the SSCP encom#asses (/! the City of 7longa#o, (%! the :unici#ality of Su"ic in Pam"ales, and (<! the area formerly occu#ied "y the Su"ic )aval ,ase. ,y limiting the a##lication of the s#ecial ta( #rivileges to the .fenced1in former Su"ic )aval ,ase., C7 ;G1A effectively discriminated against the residents of SSCP without reasona"le or valid standards, in contravention of the e4ual #rotection guarantee. DOCTRINE: Classification, to "e valid, must (/! rest on su"stantial distinctions, (%! "e germane to the #ur#ose of the law, (<! not "e limited to e(isting conditions only, and (>! a##ly e4ually to all mem"ers of the same class. A##lication to the case at "ar@ P#($ose o- RA =99=: Accelerate the conversion of military reservations into #roductive uses C'ass%-%"at%on: ,ig investors v. small investors /. *here are s#bstant%a' d%--e(en"es "etween the "ig investors who are "eing lured to esta"lish and o#erate their industries in the so1called .secured area. and the #resent "usiness o#erators outside the area. 7n the one hand, we are talking of "illion1#eso investments and thousands of ne$, $o"s. 7n the other hand, definitely none of such magnitude. In the first, the economic im#act will "e nationalB in the second, only local. %. ,ig investors are the ones who can #our huge investments to s#ur economic growth in the country and to generate em#loyment o##ortunities for the Fili#inos, the ultimate goals of the government for such conversion. *he classification is, therefore, .e(!ane to t e $#($oses o- t e 'a1. <. As laid down in -A G%%G, the o"$ective is to esta"lish a .self1sustaining, industrial, commercial, financial and investment center. in the area. *here will, therefore, "e a 'on.4te(! d%--e(en"e "etween such investment center and the areas outside it. >. *he classification a$$'%es e:#a''3 to a'' the resident individuals and "usinesses within the .secured area..

resident -amos issued C(ecutive 7rder ;G1A s#ecifying the area within which the ta(1 and1duty1free #rivilege would "e o#erative@
Sec. /./. T e Se"#(ed A(ea "ons%st%n. o- t e $(esent'3 -en"ed4%n -o(!e( S#b%" Na&a' )ase s a'' be t e on'3 "o!$'ete'3 ta2 and d#t34-(ee a(ea %n t e SSEFPD ES#b%" S$e"%a' E"ono!%" and F(ee Po(t DoneF. ,usiness enter#rises and individuals (Fili#inos and foreigners! residing within the Secured Area are free to im#ort raw materials, ca#ital goods, e4ui#ment, and consumer items ta( and duty1free. Consum#tion items, however, must "e consumed within the Secured Area. -emoval of raw materials, ca#ital goods, e4ui#ment and consumer items out of the Secured Area for sale to non1SSCF P registered enter#rises shall "e su"$ect to the usual ta(es and duties, e(ce#t as may "e #rovided herein.

*he #etitioners challenge the constitutionality of the C7 ;G1A arguing that it violates the e4ual #rotection clause. CA: *here is no su"stantial difference "etween the #rovisions of C7 ;G1A and Section /% of -A G%%G. In "oth, the 6Secured Area6 is #recise and well1defined as 6. . . the lands occu#ied "y the Su"ic )aval ,ase and its contiguous e(tensions as em"raced, covered and defined "y the /;>G :ilitary ,ases Agreement "etween the hili##ines and the United States of America, as amended . . .6 Such "eing the case, #etitioners could not claim that C7 ;G1A is unconstitutional, while at the same time maintaining the validity of -A G%%G. ISSUE: +as EO ;=4A &%o'at%&e o- t e e:#a' $(ote"t%on "'a#se6 A(.#!ent o- Pet%t%one(s: etitioners contend that the SSCP encom#asses (/! the City of 7longa#o, (%! the :unici#ality of Su"ic in Pam"ales, and (<! the area formerly occu#ied "y the Su"ic )aval ,ase. Aowever, C7 ;G1A, according to them, narrowed down the area within which the s#ecial #rivileges granted to the entire 8one would a##ly to the #resent .fenced1in former Su"ic )aval ,ase. only. It has there"y e(cluded the residents of the first two com#onents of the 8one from en$oying the "enefits granted "y the law. It has effectively discriminated against them without reasona"le or valid standards, in contravention of the e4ual #rotection guarantee. A(.#!ent o- So'%"%to( Gene(a': Section /% of -A G%%G clearly vests in the resident the authority to delineate the metes and "ounds of the SSCP.

FACTS: Congress enacted -A G%%G which created Su"ic S#ecial Cconomic Pone. -esidents and "usinesses within the said 8one were given ta( and duty incentives e.g.

RATIO: )o. *he fundamental right of e4ual #rotection of the laws is not a"solute, "ut is su"$ect to reasona"le classification. If the grou#ings are characteri8ed "y su"stantial distinctions that make real differences, one class may "e treated and regulated differently from another. *he classification must also "e germane to the #ur#ose of the law and must a##ly to all those "elonging to the same class. Classification, to "e valid, must (/! rest on su"stantial distinctions, (%! "e germane to the #ur#ose of the law, (<! not "e limited to e(isting conditions only, and (>! a##ly e4ually to all mem"ers of the same class. From the very title itself, it is clear that -A G%%G aims #rimarily to acce era"e "#e con3ersion o% 'i i"ary reser3a"ions in"o produc"i3e uses . 7"viously, the .lands covered under the /;>G :ilitary ,ases Agreement. are its o"$ect. It was reasona"le for the resident to have delimited the a##lication of some incentives to the confines of the former Su"ic military "ase. It is this s#ecific area which the government intends to transform and develo# from its s"a"us 8uo an"e as an a"andoned naval facility into a self1 sustaining industrial and commercial 8one, #articularly for "ig foreign and local investors to use as o#erational "ases for their "usinesses and industries. It will also "e easier to manage and monitor the activities within the .secured area,. which is already fenced off, to #revent .fraudulent im#ortation of merchandise. or smuggling. 2hy the seeming "ias for "ig investors? /. *here are s#bstant%a' d%--e(en"es "etween the "ig investors who are "eing lured to esta"lish and o#erate their industries in the so1called .secured area. and the #resent "usiness o#erators outside the area. 7n the one hand, we are talking of "illion1#eso investments and thousands of ne$, $o"s. 7n the other hand, definitely none of such magnitude. In the first, the economic im#act will "e nationalB in the second, only local. %. ,ig investors are the ones who can #our huge investments to s#ur economic growth in the country and to generate em#loyment o##ortunities for the Fili#inos, the ultimate goals of the government for such conversion. *he classification is, therefore, .e(!ane to t e $#($oses o- t e 'a1. <. As laid down in -A G%%G, the o"$ective is to esta"lish a .self1sustaining, industrial, commercial, financial and investment center. in the area. *here will, therefore, "e a 'on.4 te(! d%--e(en"e "etween such investment center and the areas outside it. >. *he classification a$$'%es e:#a''3 to a'' the resident individuals and "usinesses within the .secured area.. RULING: etition denied. C7 ;G1A valid.

Tan &s. De' Rosa(%o

9c"ober +, 1995 1i"ug, J. 6rancis

%. It is to "e a##lied to the #artners not the general #rofessional #artnershi# as an entity. RULING: *an contends that the title of Aouse ,ill )o. <></>, #rogenitor of -A G>;=, does not e(#ress what the law should "e considered as having ado#ted a gross income ta(ation scheme "ecause the deducti"le items have "een significantly reduced. SC: 9imiting allowa"le deductions from gross income is neither discordant with, nor o##osed to, the net income ta( conce#t. *here are still various deductions, which are "y no means inconse4uential, continue to "e well #rovided under the new law. *an argues that -A G>;= desecrates the constitutional re4uirement that ta(ation .shall "e uniform and e4uita"le. in that the law would now attem#t to ta( single #ro#rietorshi#s and #rofessionals differently from the manner it im#oses the ta( on cor#orations and #artnershi#s. SC: Uniformity of ta(ation merely re4uires that all su"$ects or o"$ects of ta(ation, similarly situated, are to "e treated alike "oth in #rivileges and lia"ilities. Uniformity does not forfend classification as long as@ (/! the standards that are used therefor are su"stantial and not ar"itrary, (%! the categori8ation is germane to achieve the legislative #ur#ose, (<! the law a##lies, all things "eing e4ual, to "oth #resent and future conditions, and (>! the classification a##lies e4ually well to all those "elonging to the same class. *he law shows the legislative intent to increasingly shift the income ta( system towards the schedular a##roach(a system em#loyed where the income ta( treatment varies and made to de#end on the kind or category of ta(a"le income of the ta(#ayer! in the income ta(ation of individual ta(#ayers and to maintain, "y and large, the #resent glo"al treatment on ta(a"le cor#orations. Such classification is valid *an discussed his #erceived im"alance "etween the ta( lia"ilities of those covered "y the amendatory law and those who are not. SC: *he legislature has discretion to determine the nature (kind!, o"$ect (#ur#ose!, e(tent (rate!, coverage (su"$ects! and si"us (#lace! of ta(ation. *he SC cannot delve into matters that rightly rest on legislative $udgment. ,ut when a ta( measure "ecomes so unconsciona"le and un$ust as to amount to confiscation of #ro#erty, the Court may take cogni8ance. Such was not demonstrated in this case. *an argues that the law violates the due #rocess clause

SUMMARY: etitioners in this case argue that the res#ondents, Sec. of Finance and Commissioner of Internal -evenue e(ceeded their authority in #romulgating Section =, -evenue -egulations )o. %1;<, to carry out -e#u"lic Act )o. G>;= which a##lied S)I* to #artners in general #rofessional #artnershi#s. *he SC held that the res#ondents did not e(ceed their authority.

DOCTRINE: Section = of -evenue -egulation )o. %1;< merely confirmed the rule on the e(tent of allowa"le deductions a##lica"le to all individual income ta(#ayers on their non1com#ensation income. FACTS: *his case is a consolidation of % s#ecial civil actions for #rohi"ition, one assailing the constitutionality of -A G>;=, the Sim#lified )et Income *a(ation Scheme (S)I*!, amending certain #rovisions of the )I-C and the other, the validity of Section =, -evenue -egulations )o. %1;<, #romulgated "y #ursuant to said law. etitioners argue that the S)I* violates the following #rovisions of the Constitution@ Article OI, Section %=(/! 5 Cvery "ill #assed "y the Congress shall em"race only one su"$ect which shall "e e(#ressed in the title thereof. Article OI, Section %E(/! 5 *he rule of ta(ation shall "e uniform and e4uita"le. *he Congress shall evolve a #rogressive system of ta(ation. Article III, Section / 5 )o #erson shall "e de#rived of . . . #ro#erty without due #rocess of law, nor shall any #erson "e denied the e4ual #rotection of the laws. etitioners in the other case argue that the Sec. of Finance and Commissioner of Internal -evenue e(ceeded their rule1making authority in a##lying S)I* to general #rofessional #artnershi#s. ISSUES: /. 2hether or not -A G>;= is unconstitutional. %. 2hether or not the S)I* should "e a##lied to general #rofessional #artnershi#s RATIO: /. )o, -A G>;= does not violate any of the #rovisions stated.

SC: *he due #rocess clause may correctly "e invoked only when there is a clear contravention of inherent or constitutional limitations in the e(ercise of the ta( #ower. *here is no such contravention in this case. Carag, Ca"alles, Jamora and Somera 9aw 7ffices argue that res#ondents e(ceeded their authority in #romulgating Section =, -evenue -egulations )o. %1 ;<, to carry out -e#u"lic Act )o. G>;= which a##lied S)I* to #artners in general #rofessional #artnershi#s. )ec. 4. Genera &ro%essiona &ar"ners#ip < T#e genera pro%essiona par"ners#ip =G&&> and "#e par"ners co'prising "#e G&& are co3ered by R. A. ;o. -594. T#us, in de"er'ining "#e ne" pro%i" o% "#e par"ners#ip, on y "#e direc" cos"s 'en"ioned in said a$ are "o be deduc"ed %ro' par"ners#ip inco'e. A so, "#e e!penses paid or incurred by par"ners in "#eir indi3idua capaci"ies in "#e prac"ice o% "#eir pro%ession $#ic# are no" rei'bursed or paid by "#e par"ners#ip bu" are no" considered as direc" cos", are no" deduc"ib e %ro' #is gross inco'e. *he 9aw 7ffice cite the deli"erations in Congress during its enactment of -e#u"lic Act )o. G>;=, which categorically stated Fthis "ill, :r. resident, is not a##lica"le to "usiness cor#orations or to #artnershi#sB it is only with res#ect to individuals and #rofessionals.H SC: A general #rofessional #artnershi#, unlike an ordinary "usiness #artnershi# (which is treated as a cor#oration for income ta( #ur#oses and so su"$ect to the cor#orate income ta(!, is not itself an income ta(#ayer. *he income ta( is im#osed not on the #rofessional #artnershi#, which is ta( e(em#t, "ut on the #artners themselves in their individual ca#acity com#uted on their distri"utive shares of #artnershi# #rofits. Section %< of the *a( Code, which has not "een amended at all "y -e#u"lic Act G>;=, is e(#licit@ )ec. 2+. Ta! iabi i"y o% 'e'bers o% genera pro%essiona par"ners#ips. < =a> &ersons e!ercising a co''on pro%ession in genera par"ners#ip s#a be iab e %or inco'e "a! on y in "#eir indi3idua capaci"y, and "#e s#are in "#e ne" pro%i"s o% "#e genera pro%essiona par"ners#ip "o $#ic# any "a!ab e par"ner $ou d be en"i" ed $#e"#er dis"ribu"ed or o"#er$ise, s#a be re"urned %or "a!a"ion and "#e "a! paid in accordance $i"# "#e pro3isions o% "#is Ti" e. *he Code classifies ta(#ayers into four main grou#s, namely@ (/! Individuals, (%! Cor#orations, (<! Cstates under Judicial Settlement and (>! Irrevoca"le *rusts (irrevoca"le "oth as to corpus and as to inco'e!. artnershi#s are, under the Code, either .ta(a"le #artnershi#s. or .e(em#t #artnershi#s.. 7rdinarily, #artnershi#s, no matter how created or organi8ed, are su"$ect to income ta( which are, "y law, assimilated to "e within the conte(t of

cor#orations. S)I* is not intended to cover cor#orations and #artnershi#s which are inde#endently su"$ect to the #ayment of income ta(. .C(em#t #artnershi#s,. u#on the other hand, are not similarly identified as cor#orations nor even considered as inde#endent ta(a"le entities for income ta( #ur#oses. A general pro%essiona #artnershi# is an e(am#le. Aere, the #artners themselves, not the #artnershi# are lia"le for the #ayment of income ta( in their indi3idua ca#acity com#uted on their res#ective and distri"utive shares of #rofits. In the determination of the ta( lia"ility, a #artner does so as an indi3idua , and there is no choice on the matter. Section = of -evenue -egulation )o. %1;< merely confirmed the rule on the e(tent of allowa"le deductions a##lica"le to all individual income ta(#ayers on their non1com#ensation income. DISPOSITI*E: etitions are +IS:ISSC+. *he law is valid and the res#ondents did not e(ceed their authority.

PHIL. RURAL ELECTRIC &. SECRETARY

June 1?, 2??+ &uno, J. Da3e Anas"acio

SUMMARY: PHILRECA, an association of 119 electric cooperatives, and Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isa ela I Electric Cooperative, Inc. (I!ELCO I), electric cooperatives organi"ed under #$ 2%9 and registered &it' t'e National Electrification Ad(inistration (NEA), are )uestioning t'e constitutionalit* of sections 193 and 234 of the Local o!e"n#ent Code$ +'ese provisions "e!o%ed ta& e&e#'tions '"e!io(sl) *"anted to elect"ic coo'e"ati!es organi"ed under #.$. 2%9, &'ile ,eeping e-e(ptions for electric cooperatives organi"ed under .A %/09, or t'e Cooperative Code of t'e #'ilippines and registered &it' t'e Cooperative $evelop(ent Aut'orit* (C$A). PHILRECA et al$ alleged t'at t'is &as a violation of t'e e)ual protection clause, since electric cooperatives under #$ 2%9 and .A %/09 &ere si(ilarl* situated. +'e !C 'eld t'at t'ere &ere su stantial differences et&een t'e t&o and t'e classification (ade * t'e la& &as reasona le. +'erefore, t'e assailed provisions of t'e Local 1overn(ent Code are constitutional. +,C-RI.E: +'e guarant* of t'e e)ual protection of t'e la&s is not violated * a la& ased on reasona le classification. Classification, to

e reasona le, (ust (1) rest on su stantial distinctions2 (2) e ger(ane to t'e purposes of t'e la&2 (/) not e li(ited to e-isting conditions onl*2 and (3) appl* e)uall* to all (e( ers of t'e sa(e class. A la& &'ic' c'anges t'e ter(s of a legal contract et&een parties, eit'er in t'e ti(e or (ode of perfor(ance, or i(poses ne& conditions, or dispenses &it' t'ose e-pressed, or aut'ori"es for its satisfaction so(et'ing different fro( t'at provided in its ter(s, is la& &'ic' i(pairs t'e o ligation of a contract and is null and void. +o constitute i(pair(ent of contracts, t'e la& (ust affect a c'ange in t'e rig'ts of t'e parties &it' reference to eac' ot'er and not &it' respect to non4parties.

loan agree(ents &it' t'e govern(ent of t'e :nited !tates of A(erica t'roug' t'e :nited !tates Agenc* for International $evelop(ent (:!AI$) &it' electric cooperatives. +'e loan provided6
!ection %.;. +a-es and $uties. +'e <orro&er covenants and agrees t'at t'is Loan Agree(ent and t'e Loan provided for 'erein shall 2e f"ee f"o#3 and the P"inci'al and inte"est shall 2e 'aid to A$I$+$ 4itho(t ded(ction fo" and f"ee f"o#3 an) ta&ation o" fees i#'osed (nde" an) la4s o" dec"ees in effect 4ithin the Re'(2lic of the Phili''ines o" an) s(ch ta&es o" fees so i#'osed o" 'a)a2le shall 2e "ei#2("sed 2) the 6o""o4e" 4ith f(nds othe" than those '"o!ided (nde" the Loan$ +o t'e e-tent t'at (other fees) are not e-e(pt fro( identifia le ta-es, tariffs, duties and ot'er levies i(posed under la&s in effect in t'e countr* of t'e <orro&er, the 6o""o4e" and7o" 6eneficia") shall 'a) o" "ei#2("se the sa#e 4ith f(nds othe" than those '"o!ided (nde" the Loan$

/AC-S: PHILRECA, an association of 119 electric cooperatives, and Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isa ela I Electric Cooperative, Inc. (I!ELCO I), electric cooperatives organi"ed under #$ 2%9 and registered &it' t'e National Electrification Ad(inistration (NEA), are )uestioning t'e constitutionalit* of sections 193 and 234 of the Local o!e"n#ent Code$ +'ese provisions "e!o%ed ta& e&e#'tions '"e!io(sl) *"anted to elect"ic coo'e"ati!es organi"ed under #.$. 2%9, &'ile ,eeping e-e(ptions for electric cooperatives organi"ed under .A %/09, or t'e Cooperative Code of t'e #'ilippines and registered &it' t'e Cooperative $evelop(ent Aut'orit* (C$A). +'e polic* e'ind #$ 2%9, or t'e National Electrification Ad(inistration $ecree, &as t'e 5t'e total electrification of t'e #'ilippines on an area coverage asis5 t'e sa(e 5 eing vital to t'e people and t'e sound develop(ent of t'e nation.5 It ai(ed to 5pro(ote, encourage and assist all pu lic service entities engaged in suppl*ing electric service, particularl* electric cooperatives5 * 5giving ever* tena le support and assistance5 to t'e electric cooperatives under it. Accordingl*, !ection /9 of #.$. No. 2%9 provided for t'e follo&ing ta- incentives to electric cooperatives6
!EC+ION /9. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. 768 coo'e"ati!es 011 shall 2e 'e"#anentl) e&e#'t f"o# 'a)in* inco#e ta&es, and 8 shall 2e e&e#'t f"o# the 'a)#ent 0a1 of all .ational o!e"n#ent3 local *o!e"n#ent and #(nici'al ta&es and fees3 incl(din* f"anchise3 filin*3 "eco"dation3 license o" 'e"#it fees o" ta&es and an) fees3 cha"*es3 o" costs in!ol!ed in an) co("t o" ad#inist"ati!e '"oceedin* in 4hich it #a) 2e a 'a"t), and 021 of all d(ties o" i#'osts on fo"ei*n *oods ac5(i"ed fo" its o'e"ations,

+'e Local 1overn(ent Code &as passed. It included t'e ff6 provisions
!ection 19/. With rawal of Tax Exemption Privile!es"7:nless ot'er&ise provided in t'is Code, ta- e-e(ptions or incentives granted to, or presentl* en9o*ed * all persons, &'et'er natural or 9uridical, including govern(ent4o&ned and controlled corporations, e&ce't8 coo'e"ati!es d(l) "e*iste"ed (nde" R$A$ .o$ 993:, non4stoc, and non4profit 'ospitals and educational institutions, a"e he"e2) 4ithd"a4n ('on the effecti!it) of this Code$ !ection 2/3. Exemptions from real propert# tax" 7+'e follo&ing are e-e(pted fro( pa*(ent of t'e real propert* ta-6 0d1 All "eal '"o'e"t) o4ned 2) d(l) "e*iste"ed coo'e"ati!es as '"o!ided fo" (nde" R$A$ .o$ 993:; and E-cept as provided 'erein, an) e&e#'tion f"o# 'a)#ent of "eal '"o'e"t) ta& '"e!io(sl) *"anted to3 o" '"esentl) en<o)ed 2)3 all 'e"sons 4hethe" nat("al o" <("idical3 incl(din* all *o!e"n#ent= o4ned and cont"olled co"'o"ations a"e he"e2) 4ithd"a4n ('on effecti!it) of this Code$

#=IL.ECA et. al. contend t'at !ections 19/ and 2/3 of t'e L1C are invalid for eing in violation of t'e e)ual protection clause and t'e non4i(pair(ent clause. ISSUES: I$ >,. the the E5(al P"otection Cla(se 4as !iolated= ., II$ >,. the .on=I#'ai"#ent Cla(se 4as !iolated= .,

+o finance t'e electrification pro9ects, t'e #'ilippine 1overn(ent, entered

RULI. : <ot' t'e E)ual #rotection Clause and Non4i(pair(ent clause &ere NO+ violated. +'e tas is valid and constitutional. RA-I,: I$ >,. the the E5(al P"otection Cla(se 4as !iolated= ., #=IL.ECA et. Al. (aintain t'at electric cooperatives registered &it' t'e NEA under #$ 2%9, and t'ose registered &it' t'e Cooperative C$A under .A %9/0 are si(ilarl* situated t'e* are ot' registered &it' govern(ent agencies2 t'e* operate for service to t'eir (e( er4 consu(ers2 and prior to t'e enact(ent of t'e Local 1overn(ent Code, t'e* &ere alread* ta-4e-e(pt. +'e e)ual protection clause under t'e Constitution (eans t'at 5no person or class of persons s'all e deprived of t'e sa(e protection of la&s &'ic' is en9o*ed * ot'er persons or ot'er classes in t'e sa(e place and in li,e circu(stances.5 +'us, t'e guarant* of t'e e)ual protection of t'e la&s is not violated * a la& ased on reasona le classification. Classification3 to 2e "easona2le3 #(st 011 "est on s(2stantial distinctions; 021 2e *e"#ane to the '("'oses of the la4; 031 not 2e li#ited to e&istin* conditions onl); and 041 a''l) e5(all) to all #e#2e"s of the sa#e class$ In t'is case, t'ere is reasona le classification. /i"st, su stantial distinctions e-ist et&een cooperatives under #$ 2%9, and cooperatives under .A %9/0. A cooperative under ..A. No. %9/0 is >A? dul* registered association of persons &it' a co((on ond of interest, &'o 'ave voluntaril* 9oined toget'er to ac'ieve a la&ful co((on or social econo(ic end, #a%in* e5(ita2le cont"i2(tions to the ca'ital "e5(i"ed and acce'tin* a fai" sha"e of the "is%s and 2enefits of the (nde"ta%in* in acco"dance 4ith (ni!e"sall) acce'ted coo'e"ati!e '"inci'les$ Cooperatives under .A %9/0, the #e#2e"s do not #a%e s(2stantial cont"i2(tion to the ca'ital "e5(i"ed$ It is the *o!e"n#ent that '(ts in the ca'ital3 in #ost cases. Anot'er principle ad'ered to * t'e Cooperative Code is t'e principle of su sidiarit*, &'ic' (eans t'at t'e govern(ent (a* onl* engage in develop(ent activities &'ere cooperatives do not posses t'e capa ilit* nor t'e resources to do so and onl* upon t'e re)uest of suc' cooperatives. +'e Cooperative Code provides6 the State "eco*ni?es the '"inci'le of s(2sidia"it) under &'ic' t'e cooperative sector &ill initiate and regulate &it'in its o&n ran,s t'e pro(otion and organi"ation, training and researc', audit and support services relating to cooperatives &it' govern(ent assistance &'ere necessar*8 govern(ent assistance to cooperatives s'all e f"ee f"o# an) "est"iction and conditionalit) that #a) in an) #anne" inf"in*e ('on the o2<ecti!es and cha"acte" of coo'e"ati!es as '"o!ided in

this Act$ -he State shall3 e&ce't as '"o!ided in this Act3 #aintain the 'olic) of noninte"fe"ence in the #ana*e#ent and o'e"ation of coo'e"ati!es$ In contrast, #$ 2%9 contains #an) '"o!isions 4hich *"ant the .EA3 ('on the ha''enin* of ce"tain e!ents3 the 'o4e" to cont"ol and ta%e o!e" the #ana*e#ent and o'e"ations of coo'e"ati!es "e*iste"ed (nde" it.
a) t'e NEA Ad(inistrator 'as t'e po&er to designate, su 9ect to t'e confir(ation of t'e <oard of Ad(inistrators, an Acting 1eneral @anager andAor #ro9ect !upervisor 82 ) t'e NEA is given t'e po&er of supervision and control over electric cooperatives and pursuant to suc' po&ers, NEA (a* issue orders, rules and regulations $2 c) No cooperative s'all orro& (one* fro( an* source &it'out t'e approval of t'e <oard of Ad(inistrators of t'e NEA2 and d) +'e (anage(ent of a cooperative s'all e vested in its <oard, su 9ect to t'e supervision and control of NEA &'ic' s'all 'ave t'e rig't to e represented and to participate in all <oard (eetings and deli erations and to approve all policies and resolutions.

+'ese are pri(aril* geared to e-pand t'e po&ers of t'e NEA over t'e electric cooperatives to ensure t'at loans granted to t'e( &ould e repaid to t'e govern(ent. On t'e ot'er 'and, coo'e"ati!es (nde" RA 993: a"e en!isioned to 2e self=s(fficient and inde'endent o"*ani?ations 4ith #ini#al *o!e"n#ent inte"!ention o" "e*(lation$ Second, t'e classification is ger(ane to t'e purpose of t'e la&. !ection 19/ of t'e Local 1overn(ent Code is indicative of t'e legislative intent to vest road ta-ing po&ers upon local govern(ent units and to li(it e-e(ptions fro( local ta-ation to entities specificall* provided t'erein. -he the li#ited and "est"icti!e nat("e of the ta& e&e#'tion '"i!ile*es (nde" the Local o!e"n#ent Code is consistent 4ith the State 'olic) to ens("e a(tono#) of local *o!e"n#ents and the o2<ecti!e of the Local o!e"n#ent Code to *"ant *en(ine and #eanin*f(l a(tono#) to ena2le local *o!e"n#ent (nits to attain thei" f(llest de!elo'#ent as self="eliant co##(nities and #a%e the# effecti!e 'a"tne"s in the attain#ent of national *oals$ +'e o vious intention of t'e la& is to roaden t'e ta- ase of local govern(ent units to assure t'e( of su stantial sources of revenue. /inall), !ections 19/ and 2/3 of t'e LoL1C are not li(ited to

e-isting conditions and appl* e)uall* to all (e( ers of t'e sa(e class. II$ >,. the .on=I#'ai"#ent Cla(se 4as !iolated= ., +o fall &it'in t'e pro'i ition on t'e i(pair(ent of t'e o ligation of contracts, t'e c'ange (ust not onl* i(pair t'e o ligation of t'e e-isting contract, ut t'e i(pair(ent (ust e su stantial. A la& &'ic' c'anges t'e ter(s of a legal contract et&een parties, eit'er in t'e ti(e or (ode of perfor(ance, or i(poses ne& conditions, or dispenses &it' t'ose e-pressed, or aut'ori"es for its satisfaction so(et'ing different fro( t'at provided in its ter(s, is la& &'ic' i(pairs t'e o ligation of a contract and is t'erefore null and void. @oreover, to constitute i(pair(ent, t'e la& (ust affect a c'ange in t'e rig'ts of t'e parties &it' reference to eac' ot'er and not &it' respect to non4parties. In t'is case, t'e loan contract does not grant an* ta- e-e(ption in favor of t'e orro&er or t'e eneficiar*. It si(pl* states t'at t'e loan proceeds and t'e principal and interest of t'e loan, upon repa*(ent * t'e orro&er, s'all e &it'out deduction of an* ta- or fee t'at (a* e pa*a le under #'ilippine la& as s(ch ta& o" fee 4ill 2e a2so"2ed 2) the 2o""o4e" 4ith f(nds othe" than the loan '"oceeds . +'e provisions do not grant an* ta- e-e(ption in favor of an* part* to t'e contract. +'e* si(pl* s'ift t'e ta- urden, if an*, on t'e transactions under t'e loan agree(ents to t'e orro&er andAor eneficiar* of t'e loan. +'us, t'e &it'dra&al * t'e Local 1overn(ent Code under !ections 19/ and 2/3 of t'e ta- e-e(ptions previousl* en9o*ed * #=IL.ECA et. all. does not i(pair t'e o ligation of t'e orro&er, t'e lender or t'e eneficiar* under t'e loan agree(ents as in fact, no ta- e-e(ption is granted t'erein. +ISP,SI-I@E: B=E.ECO.E, t'e instant petition is $ENIE$ and t'e te(porar* restraining order 'eretofore issued is LIC+E$. !O O.$E.E$.

agents. #epsi4Cola alleged t'at t'ese provisions &ere void ecause t'e* partoo, of t'e nature of an i(port ta-, and t'at t'e* &ere 'ig'l* un9ust and discri(inator*, a(ong ot'ers. +'e !C agreed t'at t'e tapartoo, of t'e nature of an i(port ta- as it applied onl* to drin,s roug't into t'e cit*, &'ic' &as e*ond t'e aut'orit* of t'e Cit* to enact. +'e !C also 'eld t'at t'e ta- &as discri(inator* and violative of t'e unifor(it* re)uired * t'e Constitution and t'e la& since onl* sales * 5agents or consignees5 of outside dealers &ould e su 9ect to t'e ta-. !ales * local dealers, not acting for or on e'alf of ot'er (erc'ants, regardless of t'e volu(e of t'eir sales, and even if t'e sa(e e-ceeded t'ose (ade * agents or consignees of producers or (erc'ants esta lis'ed outside t'e Cit* of <utuan, &ould e e-e(pt fro( t'e disputed ta-. +,C-RI.E: +'e unifor(it* essential to t'e valid e-ercise of t'e po&er of ta-ation does not re)uire identit* or e)ualit* under all circu(stances, or negate t'e aut'orit* to classif* t'e o 9ects of ta-ation. =o&ever, t'e classification (ade in t'e e-ercise of t'is aut'orit*, to e valid, (ust e reasona le%and t'is re)uire(ent is not dee(ed satisfied unless6 (1) it is ased upon su stantial distinctions &'ic' (a,e real differences2 (2) t'ese are ger(ane to t'e purpose of t'e legislation or ordinance2 (/) t'e classification applies, not onl* to present conditions, ut, also, to future conditions su stantiall* identical to t'ose of t'e present2 and (3) t'e classification applies e)uall* all t'ose &'o elong to t'e sa(e class. /AC-S: #epsi4Cola <ottling Co(pan* of t'e #'ilippines, is a corporation &it' principal place of usiness in Due"on Cit*. It see,s to recover t'e su(s paid * it to t'e Cit* of <utuan pursuant to its M(nici'al ,"dinance .o$ 11A3 as a#ended 2) M(nici'al ,"dinance .o$ 122 . !ection 2 of t'e Ordinance provides for t'e pa*(ent * 5an* agent andAor consignee5 of an* dealer 5engaged in selling li)uors, i(ported or local, in t'e Cit*,5 of ta-es at specified rates. !ection /4A, defines t'e (eaning of t'e ter( 5consignee or agent5 for purposes of t'e ordinance. !ection 9 (a,es t'e ordinance applica le to soft drin,s, li)uors or car onated drin,s 5received outside5 ut 5sold &it'in5 t'e Cit*. #epsi4Cola (aintains t'at t'e disputed ordinance is null and void ecause6 (1) it parta,es of t'e nature of an i(port ta-2 (2) it a(ounts to dou le ta-ation2 (/) it is e-cessive, oppressive and confiscator*2 (3) it is 'ig'l* un9ust and discri(inator*2 and (;) it is an unconstitutional delegation of legislative po&ers. ISSUES: I$ >,. it 'a"ta%es of an i#'o"t ta&= YES

PEPSI4COLA &. CITY OF )UTUAN

Augus" 2,, 194, /oncepcion, /.J. Da3e Anas"acio

SUMMARY: #epsi4Cola <ottling Co(pan* of t'e #'ilippines filed a suit against t'e Cit* of <utuan, see,ing to recover t'e su(s it paid to t'e latter, pursuant to M(nici'al ,"dinance .o$ 11A3 as a#ended 2) M(nici'al ,"dinance .o$ 122$ +'e ta- is applica le to soft drin,s,5received outside5 ut 5sold &it'in5 t'e Cit* * Consignors or

II$ >,. it is (n<(st and disc"i#inato")=YES III$ ,the" alle*ations=., RULI. : +'e Court struc, do&n t'e ta- as un9ust and discri(inator* RA-I,: I$ >,. it 'a"ta%es of an i#'o"t ta&= YES +'e is i(posed onl* upon 5an* agent andAor consignee of an* person, association, partners'ip, co(pan* or corporation engaged in selling ... soft drin,s or car onated drin,s.5 !ection /4A states6 ECor purposes of t'is Ordinance, a consignee of agent s'all (ean an* person, association, partners'ip, co(pan* or corporation &'o acts in t'e place of anot'er * aut'orit* fro( 'i( or one entrusted &it' t'e usiness of anot'er or to &'o( is consigned or s'ipped no less t'an 1,FFF cases of 'ard li)uors or soft drin,s ever* (ont' for resale, eit'er retail or &'olesale.G As a conse)uence, (erc'ants engaged in t'e sale of soft drin, or car onated drin,s, are not su 9ect to t'e ta-, unless they are agents and/or consignees of another dealer, 4ho3 in the !e") nat("e of thin*s3 #(st 2e one en*a*ed in 2(siness outside the Cit). <esides, t'e ta- &ould not e applica le to suc' agent andAor consignee, if less t'an 1,FFF cases of soft drin,s are consigned or s'ipped to 'i( ever* (ont'. B'en &e consider, also, t'at t'e ta- 5s'all e ased and co(puted fro( t'e car!o manifest or %ill of la in! ... s'o&ing t'e nu( er of cases5 7 not sold 7 ut 5 receive 5 * t'e ta-pa*er, the intention to li#it the a''lication of the o"dinance to soft d"in%s and ca"2onated d"in%s 2"o(*ht into the Cit) f"o# o(tside 2eco#es a''a"ent$ Hie&ed fro( t'is angle, t'e ta- parta,es of t'e nature of an i(port dut*, &'ic' is e*ond defendantIs aut'orit* to i(pose * e-press provision of la&. II$ >,. it is (n<(st and disc"i#inato")=YES +'e ta- is invalid for eing discri(inator* and violative of t'e unifor(it* re)uired * t'e Constitution since onl) sales 2) Ba*ents o" consi*neesB of outside deale"s 4o(ld 2e s(2<ect to the ta&$ Sales 2) local deale"s3 not actin* fo" o" on 2ehalf of othe" #e"chants3 regardless of the volume of thei" sales3 and e!en if the sa#e e&ceeded those #ade 2) said a*ents o" consi*nees of '"od(ce"s o" #e"chants esta2lished o(tside the Cit) of 6(t(an3 4o(ld 2e exempt f"o# the dis'(ted ta&$

It is true t'at t'e unifor(it* essential to t'e valid e-ercise of t'e po&er of ta-ation does not re)uire identit* or e)ualit* under all circu(stances, ut classifications (ade * la&, to e valid, (ust e reasona le. +'is re)uire(ent is not dee(ed satisfied unless6 (1) it is ased upon su stantial distinctions &'ic' (a,e real differences2 (2) t'ese are ger(ane to t'e purpose of t'e legislation or ordinance2 (/) t'e classification applies, not onl* to present conditions, ut, also, to future conditions su stantiall* identical to t'ose of t'e present2 and (3) t'e classification applies e)uall* all t'ose &'o elong to t'e sa(e class. +'is casedoes not (eet t'e re)uire(ents. If t'e purpose of t'e ta- &ere to lev* a urden upon t'e sale of soft drin,s or car onated everages, the"e is no "eason 4h) sales 2) selle"s othe" than a*ents o" consi*nees of '"od(ce"s o" #e"chants esta2lished o(tside the Cit) of 6(t(an sho(ld 2e e&e#'t f"o# the ta&$ III$ ,the" alle*ations=., +'e Court said t'e ot'er allegations 'ad no (erit. +'e ta- &as not e-cessive, and dou le ta-ation is not per se illegal. +ISP,SI-I@E: B=E.ECO.E, t'e decision appealed fro( is 'ere * reversed, and anot'er one s'all e entered annulling Ordinance No. 11F, as a(ended * Ordinance No. 122, and sentencing t'e Cit* of <utuan to refund to plaintiff 'erein t'e a(ounts collected fro( and paid under protest * t'e latter, &it' interest t'ereon at t'e legal rate fro( t'e date of t'e pro(ulgation of t'is decision, in addition to t'e costs, and defendants 'erein are, accordingl*, restrained and pro'i ited per(anentl* fro( enforcing said Ordinance, as a(ended. It is so ordered.

MA.ILA RACE H,RSE -RAI.ERS ASS,CIA-I,.3 I.C$3 and CUA. -$ S,R+A.3 vs.MA.UEL +E LA /UE.-E
&anura# '', '()' Tuason, &" Dave Anastacio

SUMMARY: Manila Race Ho"ses -"aine"s Association3 Inc$3 o&ners of oarding sta les for race 'orses, filed an action to declare ,"dinance .o$ 3A9D of the Cit) of Manila violative of t'e #'ilippine Constitution for eing unreasona le, since t'e nu( er of 'orses &as ta,en into consideration, and discri(inator* as onl* sta les used for race 'orses

&ere ta-ed. +'e !C ruled t'at t'e (et'od &as fair and t'at t'e classification (ade in ta-ing onl* 'orses used for racing &as ased on good reasons. +,C-RI.E: +'ere is e)ualit* and unifor(it* in ta-ation if all articles or ,inds of propert* of t'e sa(e class are ta-ed at t'e sa(e rate. .easona le classifications are valid and different t'ings are to e treated differentl*. /AC-S: An action for a declarator* relief &as instituted * t'e Manila Race Ho"ses -"aine"s Association3 Inc$3 o&ners of oarding sta les for race 'orses, clai(ing t'at t'eir rig'ts are affected * ,"dinance .o$ 3A9D of the Cit) of Manila . +'e* (ade t'e @a*or of @anila defendant and pra*ed t'at said ordinance e declared violative of t'e #'ilippine Constitution. It &as declared valid, and so t'e* appealed. ISSUES: I$ >,. (sin* the n(#2e" of ho"ses as 2asis fo" the ta& is fai"=YES II$ >,. the ta& is disc"i#inato")=., RULI. : +'e ta- is valid. :sing t'e nu( er of 'orses is fair, and t'e la& (a,es a reasona le classification et&een 'orses used for racing and t'ose t'at are not. RA-I,: I$ >,. (sin* the n(#2e" of ho"ses as 2asis fo" the ta& is fai"=YES !ection 2 of t'e ordinances states t'at t'e asis of t'e license fees 5is t'e nu( er of race 'orses ,ept or (aintained in t'e oarding sta les to e paid * t'e (aintainers at t'e rate of #1F.FF a *ear for eac' race 'orse.5 +'e nu( er of 'orses is used in t'e assess(ent purel* as a (et'od of fi-ing an e)uita le and practical distri ution of t'e urden i(posed * t'e (easure. Car fro( eing o no-ious, t'e (et'od is fair and 9ust. It is fair and 9ust t'at for a oarding sta le &'ere onl* one 'orse is (aintained to e e-acted a lesser a(ount t'an for a sta le &'ere (ore 'orses are ,ept and fro( &'ic' greater inco(e is derived. I$ >,. the ta& is disc"i#inato")=., In t'e case of Eastern Theatrical Co" Inc", vs" Alfonso, t'e Court said t'at the"e is e5(alit) and (nifo"#it) in ta&ation if all a"ticles o" %inds of '"o'e"t) of the sa#e class a"e ta&ed at the sa#e "ate$ +'ere

&ould onl* e discri(ination if oarding sta les of the same class use for the same num%er of horses &ere ta-ed differentl*" Cro( t'e vie&point of econo(ics and pu lic polic*, t'e ta-ing of oarding sta les for race 'orses and not sta les for 'orses used for ot'er purposes (a,es sense. +'e o&ners of oarding sta les for race 'orses and t'e race 'orse o&ners t'e(selves are a class %# themselves an appropriatel# taxe . O&ners of ot'er ,inds of 'orses are ta-ed less or not at all considering t'at e)uit* in ta-ation is generall* conceived in ter(s of a ilit* to pa* in relation to t'e enefits received * t'e ta-pa*er and * t'e pu lic fro( t'e usiness or propert* ta-ed. Race ho"ses a"e de!oted to *a#2lin* if le*ali?ed3 and thei" o4ne"s de"i!e fat inco#e and the '(2lic ha"dl) an) '"ofit f"o# ho"se "acin*3 and this 2(siness de#ands "elati!el) hea!) 'olice s('e"!ision$ +'e differentiation confor(s to t'e practical dictates of 9ustice and e)uit* and is not discri(inator* &it'in t'e (eaning of t'e Constitution. +ISP,SI-I@E: Be are of t'e opinion t'at t'e trial court co((itted no error and t'e 9udg(ent is affir(ed &it' costs against t'e plaintiff4 appellants.

S%son, J(. &. An" eta

Ju y 24,19,5 6ernando, /J )ai

SUMMARY: Antero Sison Jr. filed this case for declaratory relief or #rohi"ition #roceeding against ,I- acting commissioner Ancheta, challenging the validity of Section / of ,atas am"ansa ,lg. /<& alleging that he would "e unduly discriminated against "y the im#osition of higher rates of ta( u#on his income arising from the e(ercise of his #rofession and that they are o##ressive and ca#ricious. SC u#held the validity of the , /<& Sison Jr has not made out a case since allegations lack factual foundation to show the ar"itrary character of the assailed #rovision as well as on due #rocess, e4ual #rotection and uniformity. DOCTRINE: *he #ower to ta(, an inherent #rerogative has to "e availed of to assure the #erformance of vital state functions. It is the source of the "ulk of #u"lic funds. *a(es "eing the life "lood of the government, their #rom#t and certain availa"ility is of the essence. As Justice :alcolm asserted F*he #ower to ta( is an attri"ute of sovereignty. It is the strongest of all #owers of the governmentH.. *here are restrictions set forth "y the Constitution. ,oth due #rocess and e4ual #rotection clauses may #ro#erly "e invokedto invalidate a revenue measure.

FACTS: Antero Sison Jr. filed this case for declaratory relief or #rohi"ition #roceeding against ,I- acting commissioner Ancheta, challenging the validity of Section / of ,atas am"ansa ,lg. /<& which amends Section %/ of the )I-C /;GG #roviding for rates of ta( on citi8ens or residents on (a! ta(a"le com#ensation income, ("! ta(a"le net income, (c! royalties, #ri8es, and other winnings, (d! interest from "ank de#osits and yield or any other monetary "enefit from de#osit su"stitutes and from trust fund and similar arrangements, (e! dividends and share of individual #artner in the net #rofits of ta(a"le #artnershi#, (f! ad$usted gross income. Sison alleges that he would "e unduly discriminated against "y the im#osition of higher rates of ta( u#on his income arising from the e(ercise of his #rofession through that im#osed u#on fi(ed income or salaried individual ta(#ayers. Ae asserts that they are ar"itrary amounting to class legislation, o##ressive and ca#ricious. ISSUE: +ON Se"t%on , o- )P )'.. ,/0 1 %" %!$oses a %. e( ta2 (ate on ta2ab'e net %n"o!e de(%&ed -(o! b#s%ness o( $(o-ess%on t an on "o!$ensat%on %s "onst%t#t%ona''3 %n-%(!4 NO5 SC ruled that "ecause the field of state activity has assumed a much wider sco#e, there is need for more revenues. *he #ower to ta(, an inherent #rerogative has to "e availed of to assure the #erformance of vital state functions. It is the source of the "ulk of #u"lic funds. *a(es "eing the life "lood of the government, their #rom#t and certain availa"ility is of the essence. As Justice :alcolm asserted F*he #ower to ta( is an attri"ute of sovereignty. It is the strongest of all #owers of the governmentH. ,ut the #ower to ta( is not unconfined. *here are restrictions set forth "y the Constitution. ,oth due #rocess and e4ual #rotection clauses may #ro#erly "e invoked, as #etitioner does in this case, to invalidate a revenue measure. If it were otherwise, there would "e truth to the /E0< dictum of Justice :arshall that the #ower to ta( involves the #ower to destroy. *his dictum was "rushed away "y one stroke of Justice AolmesJ s #en@ the #ower to ta( is not the #ower to destroy while this court sits. 7n ar"itrariness, the SC said that mere allegation does not suffice. *here must "e a factual foundation of such constitutional taint. Considering that Sison, Jr. would condemn such a #rovision as void on its face, he has not made out a case. 2here due #rocess and e4ual #rotection clauses are invoked, considering that they are not fi(ed rules "ut "road standards, there is a need of #roof. A"sent such showing, #resum#tion of validity must #revail a.!7) +ue #rocess +ue #rocess clause may "e invoked where a ta(ing statute is so ar"itrary that it finds no su##ort in the Constitution. An e(am#le of clear a"use of #ower is confiscation of #ro#erty or where the assailed ta( measure is "eyond the $urisdiction of the state, or is not for a #u"lic #ur#ose, or, in case of a retroactive statute is so harsh and unreasona"le, it is su"$ect to attack on due #rocess grounds.

".! 7) C4ual rotection 2hen the assailed act is in the e(ercise of the #olice #ower or eminent domain, the a##lica"le standard is that the act far from "eing ins#ired "y the attainment of the common weal was #rom#ted "y the s#irit of hostility, or at the very least, discrimination that finds no su##ort in reason. In terms of "urden or charges, those that fall within a class should "e treated in the same fashion, whatever restrictions cast on some in the grou# e4ually "inding on the rest. *his a##lies as well to ta(ation measures. C4ual #rotection is ins#ired "y the no"le conce#t of a##ro(imating the Ideal of the laws "enefits "eing availa"le to all and the affairs of men "eing governed "y that serene and im#artial uniformity, which is of the very essence of the Idea of law. Aowever, as said "y Justice Frankfurter@ .*he e4uality at which the 6e4ual #rotection6 clause aims is not a disem"odied e4uality. *he Fourteenth Amendment en$oins 6the e4ual #rotection of the laws,6 and laws are not a"stract #ro#ositions. *hey do not relate to a"stract units A, , and C, "ut are e(#ressions of #olicy arising out of s#ecific difficulties, address to the attainment of s#ecific ends "y the use of s#ecific remedies. *he Constitution does not re4uire things which are different in fact or o#inion to "e treated in law as though they were the same.. Aence the constant reiteration of the view that classification if rational in character is allowa"le. In 9ut8 O. Araneta, J.,.9. -eyes held .at any rate, it is inherent in the #ower to ta( that a state "e free to select the su"$ects of ta(ation, and it has "een re#eatedly held that 6ine4ualities which result from a singling out of one #articular class for ta(ation, or e(em#tion infringe no constitutional limitation. ".! 7) Uniformity In hili##ine *rust Com#any v. Katco, Justice 9aurel said that when re4uirement of uniformity is met when the ta( o#erates with the same force and effect in every #lace where the su"$ect may "e found. *he rule of uniformity does not call for #erfect uniformity or #erfect e4uality, "ecause this is hardly attaina"le.. *he #ro"lem of classification did not #resent itself in that case. It did not arise until ;years later, when the SC held@ .C4uality and uniformity in ta(ation means that all ta(a"le articles or kinds of #ro#erty of the same class shall "e ta(ed at the same rate. *he ta(ing #ower has the authority to make reasona"le and natural classifications for #ur#oses of ta(ation. As clarified "y Justice *uason, where .the differentiation. com#lained of .conforms to the #ractical dictates of $ustice and e4uity. it .is not discriminatory within the meaning of this clause and is therefore uniform.. *here is 4uite a similarity then to the standard of e4ual #rotection for all that is re4uired is that the ta( .a##lies e4ually to all #ersons, firms and cor#orations #laced in similar situation.. SC said that what misled #etitioner is his failure to take into consideration the distinction "etween a ta( rate and a ta( "ase. *here is no legal o"$ection to a "roader ta( "ase or ta(a"le income "y eliminating all deducti"le items and at the same time reducing the a##lica"le ta( rate. *a(#ayers may "e classified into different categories. In the case of the gross income ta(ation em"odied in , /<&, the, discerni"le "asis of classification is the susce#ti"ility of the income to

the a##lication of generali8ed rules removing all deducti"le items for all ta(#ayers within the class and fi(ing a set of reduced ta( rates to "e a##lied to all of them. *a(#ayers who are reci#ients of com#ensation income are set a#art as a class. As there is #ractically no overhead e(#ense, these ta(#ayers are e not entitled to make deductions for income ta( #ur#oses "ecause they are in the same situation more or less. 7n the other hand, in the case of #rofessionals in the #ractice of their calling and "usinessmen, there is no uniformity in the costs or e(#enses necessary to #roduce their income. It would not "e $ust then to disregard the dis#arities "y giving all of them 8ero deduction and indiscriminately im#ose on all alike the same ta( rates on the "asis of gross income. *here is am#le $ustification then for the , /<& to ado#t the gross system of income ta(ation to com#ensation income, while continuing the system of net income ta(ation as regards #rofessional and "usiness income DISPOSITI*E: Pet%t%on %s d%s!%ssed -o( (/! lack of factual foundation to show the ar"itrary character of the assailed #rovisionB (%! the force of controlling doctrines on due #rocess, e4ual #rotection, and uniformity in ta(ation and (<! the reasona"leness of the distinction "etween com#ensation and ta(a"le net income of #rofessionals and "usinessman certainly not a sus#ect classification

ISSUES: 2hether or not -A GG/= violates #ress freedom and religious freedom RATIO: )o, -A GG/= does not violate freedom of the #ress and religious freedom RULING: *he SC has held that the #ress is not e(em#t from the ta(ing #ower of the State and that what the constitutional guarantee of free #ress #rohi"its are laws which single out the #ress or target a grou# "elonging to the #ress for s#ecial treatment or which in any way discriminate against the #ress on the "asis of the content of the #u"lication. Since the law granted the #ress a #rivilege, the law could take "ack the #rivilege anytime without offense to the Constitution. *he reason is "y granting e(em#tions, the State does not forever waive the e(ercise of its sovereign #rerogative. In 3ros$ean v. American ress Co, the large #a#ers were critical of Senator Auey 9ong who controlled the state legislature which enacted the license ta(. *he censorial motivation for the law was thus evident. In :innea#olis Star R *ri"une Co. v. :innesota Commissioner of -evenue, the #ress, although could have "een made lia"le for the sales ta(, was not made lia"le "ut was instead e(em#ted and later made to #ay a s#ecial use ta( on the cost of #a#er and ink which made these items the only items su"$ect to the use ta(. *he U.S. Su#reme Court held that the differential treatment of the #ress .suggests that the goal of regulation is not related to su##ression of e(#ression, and such goal is #resum#tively unconstitutional.. It would a##ear that even a law that favors the #ress is constitutionally sus#ect *here were other e(em#tions from the OA*, such as those #reviously granted to A9, #etroleum concessionaires, enter#rises registered with the C(#ort rocessing Pone Authority, and many more are likewise totally withdrawn, in addition to e(em#tions which are #artially withdrawn, in an effort to "roaden the "ase of the ta(. *he I says that the discriminatory treatment of the #ress is highlighted "y the fact that transactions, which are #rofit oriented, continue to en$oy e(em#tion under -.A. )o. GG/=. An enumeration of some of these transactions will show that the e(em#tions are granted for a #ur#ose. As the Sol13en says, such e(em#tions are granted, in some cases, to encourage agricultural #roduction and, in other cases, for the #ersonal "enefit of the end1user rather than for #rofit. Some e(em#t transactions are@ (a! 3oods for consum#tion or use which are in their original state (agricultural, marine and forest #roducts, cotton seeds in their original state, fertili8ers, seeds, seedlings, fingerlings, fish, #rawn livestock and #oultry feeds! and goods or

To'ent%no &s. Se". o- F%nan"e

9c"ober +?, 1995 Mendoza, J. 6rancis

Q *here are a lot of constitutional issues in the case. I did not include most of them since :aam said concentrate on the to#ic in the sylla"us. SUMMARY: *his is a motion for reconsideration of the / st *olentino vs. Sec. of Finance. *he same issues and arguments were made "y the #arties. *he SC sustained the validity of the law. DOCTRINE: *he SC e(#lained that the case cited "y the #etitioners involved a license ta( which is mainly for regulation, which was necessary for the e(ercise of the #rivilege or right. *he OA* is not a license ta( "ut is im#osed on the sale, "arter, lease or e(change of goods or #ro#erties or the sale or e(change of services and the lease of #ro#erties #urely for revenue #ur#oses. FACTS: -A GG/= sought to widen the ta( "ase of the e(isting OA* system and enhance its administration "y amending the )ational Internal -evenue Code. In the /st *olentino vs. Sec. of Finance case, the SC held that the statute is constitutional. *he #arties filed a motion for reconsideration arguing the same #oints in the /st case. I is again contending that "y removing the e(em#tion of the #ress from the OA* while maintaining those granted to others, the law discriminates against the #ress. It is also argued that even nondiscriminatory ta(ation of constitutionally guaranteed freedom is unconstitutional.

services to enhance agriculture (milling of #alay, corn, sugar cane and raw sugar, livestock, #oultry feeds, fertili8er, ingredients used for the manufacture of feeds!. ("! 3oods used for #ersonal consum#tion or use (household and #ersonal effects of citi8ens returning to the hili##ines! or for #rofessional use, like #rofessional instruments and im#lements, "y #ersons coming to the hili##ines to settle here. *he I asserts that it does not really matter that the law does not discriminate against the #ress "ecause .even nondiscriminatory ta(ation on constitutionally guaranteed freedom is unconstitutional.. I cites in :urdock v. ennsylvania stating that Fthe fact that the ordinance is nondiscriminatory is immaterial. A license ta( certainly does not ac4uire constitutional validity "ecause it classifies the #rivileges #rotected "y the First Amendment along with the wares and merchandise of hucksters and #eddlers and treats them all alike. Such e4uality in treatment does not save the ordinance. Freedom of #ress, freedom of s#eech, freedom of religion are in #referred #osition.H *he Court was s#eaking in that case of a '%"ense ta2, which, unlike an ordinary ta(, is !a%n'3 -o( (e.#'at%on. Its im#osition on the #ress is unconstitutional "ecause it lays a #rior restraint on the e(ercise of its right. *he OA* is different. It is not a license ta(. It is not a ta( on the e(ercise of a #rivilege, much less a constitutional right. It is im#osed on the sale, "arter, lease or e(change of goods or #ro#erties or the sale or e(change of services and the lease of #ro#erties $#(e'3 -o( (e&en#e $#($oses. *o su"$ect the #ress to its #ayment is not to "urden the e(ercise of its right any more than to make the #ress #ay income ta( or su"$ect it to general regulation is not to violate its freedom under the Constitution. DISPOSITI*E: etitions are +IS:ISSC+. -A GG/= is valid.

SUMMARY: PHILRECA, an association of 119 electric cooperatives, and Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isa ela I Electric Cooperative, Inc. (I!ELCO I), electric cooperatives organi"ed under #$ 2%9 and registered &it' t'e National Electrification Ad(inistration (NEA), are )uestioning t'e constitutionalit* of sections 193 and 234 of the Local o!e"n#ent Code$ +'ese provisions "e!o%ed ta& e&e#'tions '"e!io(sl) *"anted to elect"ic coo'e"ati!es organi"ed under #.$. 2%9, &'ile ,eeping e-e(ptions for electric cooperatives organi"ed under .A %/09, or t'e Cooperative Code of t'e #'ilippines and registered &it' t'e Cooperative $evelop(ent Aut'orit* (C$A). PHILRECA et al$ alleged t'at t'is &as a violation of t'e e)ual protection clause, since electric cooperatives under #$ 2%9 and .A %/09 &ere si(ilarl* situated. +'e !C 'eld t'at t'ere &ere su stantial differences et&een t'e t&o and t'e classification (ade * t'e la& &as reasona le. +'erefore, t'e assailed provisions of t'e Local 1overn(ent Code are constitutional. +,C-RI.E: +'e guarant* of t'e e)ual protection of t'e la&s is not violated * a la& ased on reasona le classification. Classification, to e reasona le, (ust (1) rest on su stantial distinctions2 (2) e ger(ane to t'e purposes of t'e la&2 (/) not e li(ited to e-isting conditions onl*2 and (3) appl* e)uall* to all (e( ers of t'e sa(e class. A la& &'ic' c'anges t'e ter(s of a legal contract et&een parties, eit'er in t'e ti(e or (ode of perfor(ance, or i(poses ne& conditions, or dispenses &it' t'ose e-pressed, or aut'ori"es for its satisfaction so(et'ing different fro( t'at provided in its ter(s, is la& &'ic' i(pairs t'e o ligation of a contract and is null and void. +o constitute i(pair(ent of contracts, t'e la& (ust affect a c'ange in t'e rig'ts of t'e parties &it' reference to eac' ot'er and not &it' respect to non4parties.

CI- O. 9I)3AKC) 3U9F1 Aly :isamis v. CC A9C7

PHIL. RURAL ELECTRIC &. SECRETARY
June 1?, 2??+ &uno, J. Da3e Anas"acio

/AC-S: PHILRECA, an association of 119 electric cooperatives, and Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isa ela I Electric Cooperative, Inc. (I!ELCO I), electric cooperatives organi"ed under #$ 2%9 and registered &it' t'e National Electrification Ad(inistration (NEA), are )uestioning t'e constitutionalit* of sections 193 and 234 of the Local o!e"n#ent Code$ +'ese provisions "e!o%ed ta& e&e#'tions '"e!io(sl) *"anted to elect"ic coo'e"ati!es organi"ed under #.$. 2%9, &'ile ,eeping e-e(ptions for electric cooperatives organi"ed under .A %/09, or t'e Cooperative Code of t'e #'ilippines and registered &it' t'e Cooperative $evelop(ent Aut'orit* (C$A). +'e polic* e'ind #$ 2%9, or t'e National Electrification

Ad(inistration $ecree, &as t'e 5t'e total electrification of t'e #'ilippines on an area coverage asis5 t'e sa(e 5 eing vital to t'e people and t'e sound develop(ent of t'e nation.5 It ai(ed to 5pro(ote, encourage and assist all pu lic service entities engaged in suppl*ing electric service, particularl* electric cooperatives5 * 5giving ever* tena le support and assistance5 to t'e electric cooperatives under it. Accordingl*, !ection /9 of #.$. No. 2%9 provided for t'e follo&ing ta- incentives to electric cooperatives6
!EC+ION /9. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. 768 coo'e"ati!es 011 shall 2e 'e"#anentl) e&e#'t f"o# 'a)in* inco#e ta&es, and 8 shall 2e e&e#'t f"o# the 'a)#ent 0a1 of all .ational o!e"n#ent3 local *o!e"n#ent and #(nici'al ta&es and fees3 incl(din* f"anchise3 filin*3 "eco"dation3 license o" 'e"#it fees o" ta&es and an) fees3 cha"*es3 o" costs in!ol!ed in an) co("t o" ad#inist"ati!e '"oceedin* in 4hich it #a) 2e a 'a"t), and 021 of all d(ties o" i#'osts on fo"ei*n *oods ac5(i"ed fo" its o'e"ations,

!ection 2/3. Exemptions from real propert# tax" 7+'e follo&ing are e-e(pted fro( pa*(ent of t'e real propert* ta-6 0d1 All "eal '"o'e"t) o4ned 2) d(l) "e*iste"ed coo'e"ati!es as '"o!ided fo" (nde" R$A$ .o$ 993:; and E-cept as provided 'erein, an) e&e#'tion f"o# 'a)#ent of "eal '"o'e"t) ta& '"e!io(sl) *"anted to3 o" '"esentl) en<o)ed 2)3 all 'e"sons 4hethe" nat("al o" <("idical3 incl(din* all *o!e"n#ent= o4ned and cont"olled co"'o"ations a"e he"e2) 4ithd"a4n ('on effecti!it) of this Code$

#=IL.ECA et. al. contend t'at !ections 19/ and 2/3 of t'e L1C are invalid for eing in violation of t'e e)ual protection clause and t'e non4i(pair(ent clause. ISSUES: I$ >,. the the E5(al P"otection Cla(se 4as !iolated= ., II$ >,. the .on=I#'ai"#ent Cla(se 4as !iolated= ., RULI. : <ot' t'e E)ual #rotection Clause and Non4i(pair(ent clause &ere NO+ violated. +'e tas is valid and constitutional. RA-I,: I$ >,. the the E5(al P"otection Cla(se 4as !iolated= ., #=IL.ECA et. Al. (aintain t'at electric cooperatives registered &it' t'e NEA under #$ 2%9, and t'ose registered &it' t'e Cooperative C$A under .A %9/0 are si(ilarl* situated t'e* are ot' registered &it' govern(ent agencies2 t'e* operate for service to t'eir (e( er4 consu(ers2 and prior to t'e enact(ent of t'e Local 1overn(ent Code, t'e* &ere alread* ta-4e-e(pt. +'e e)ual protection clause under t'e Constitution (eans t'at 5no person or class of persons s'all e deprived of t'e sa(e protection of la&s &'ic' is en9o*ed * ot'er persons or ot'er classes in t'e sa(e place and in li,e circu(stances.5 +'us, t'e guarant* of t'e e)ual protection of t'e la&s is not violated * a la& ased on reasona le classification. Classification3 to 2e "easona2le3 #(st 011 "est on s(2stantial distinctions; 021 2e *e"#ane to the '("'oses of the la4; 031 not 2e li#ited to e&istin* conditions onl); and 041 a''l) e5(all) to all #e#2e"s of the sa#e class$ In t'is case, t'ere is reasona le classification.

+o finance t'e electrification pro9ects, t'e #'ilippine 1overn(ent, entered loan agree(ents &it' t'e govern(ent of t'e :nited !tates of A(erica t'roug' t'e :nited !tates Agenc* for International $evelop(ent (:!AI$) &it' electric cooperatives. +'e loan provided6
!ection %.;. +a-es and $uties. +'e <orro&er covenants and agrees t'at t'is Loan Agree(ent and t'e Loan provided for 'erein shall 2e f"ee f"o#3 and the P"inci'al and inte"est shall 2e 'aid to A$I$+$ 4itho(t ded(ction fo" and f"ee f"o#3 an) ta&ation o" fees i#'osed (nde" an) la4s o" dec"ees in effect 4ithin the Re'(2lic of the Phili''ines o" an) s(ch ta&es o" fees so i#'osed o" 'a)a2le shall 2e "ei#2("sed 2) the 6o""o4e" 4ith f(nds othe" than those '"o!ided (nde" the Loan$ +o t'e e-tent t'at (other fees) are not e-e(pt fro( identifia le ta-es, tariffs, duties and ot'er levies i(posed under la&s in effect in t'e countr* of t'e <orro&er, the 6o""o4e" and7o" 6eneficia") shall 'a) o" "ei#2("se the sa#e 4ith f(nds othe" than those '"o!ided (nde" the Loan$

+'e Local 1overn(ent Code &as passed. It included t'e ff6 provisions
!ection 19/. With rawal of Tax Exemption Privile!es"7:nless ot'er&ise provided in t'is Code, ta- e-e(ptions or incentives granted to, or presentl* en9o*ed * all persons, &'et'er natural or 9uridical, including govern(ent4o&ned and controlled corporations, e&ce't8 coo'e"ati!es d(l) "e*iste"ed (nde" R$A$ .o$ 993:, non4stoc, and non4profit 'ospitals and educational institutions, a"e he"e2) 4ithd"a4n ('on the effecti!it) of this Code$

/i"st, su stantial distinctions e-ist et&een cooperatives under #$ 2%9, and cooperatives under .A %9/0. A cooperative under ..A. No. %9/0 is >A? dul* registered association of persons &it' a co((on ond of interest, &'o 'ave voluntaril* 9oined toget'er to ac'ieve a la&ful co((on or social econo(ic end, #a%in* e5(ita2le cont"i2(tions to the ca'ital "e5(i"ed and acce'tin* a fai" sha"e of the "is%s and 2enefits of the (nde"ta%in* in acco"dance 4ith (ni!e"sall) acce'ted coo'e"ati!e '"inci'les$ Cooperatives under .A %9/0, the #e#2e"s do not #a%e s(2stantial cont"i2(tion to the ca'ital "e5(i"ed$ It is the *o!e"n#ent that '(ts in the ca'ital3 in #ost cases. Anot'er principle ad'ered to * t'e Cooperative Code is t'e principle of su sidiarit*, &'ic' (eans t'at t'e govern(ent (a* onl* engage in develop(ent activities &'ere cooperatives do not posses t'e capa ilit* nor t'e resources to do so and onl* upon t'e re)uest of suc' cooperatives. +'e Cooperative Code provides6 the State "eco*ni?es the '"inci'le of s(2sidia"it) under &'ic' t'e cooperative sector &ill initiate and regulate &it'in its o&n ran,s t'e pro(otion and organi"ation, training and researc', audit and support services relating to cooperatives &it' govern(ent assistance &'ere necessar*8 govern(ent assistance to cooperatives s'all e f"ee f"o# an) "est"iction and conditionalit) that #a) in an) #anne" inf"in*e ('on the o2<ecti!es and cha"acte" of coo'e"ati!es as '"o!ided in this Act$ -he State shall3 e&ce't as '"o!ided in this Act3 #aintain the 'olic) of noninte"fe"ence in the #ana*e#ent and o'e"ation of coo'e"ati!es$ In contrast, #$ 2%9 contains #an) '"o!isions 4hich *"ant the .EA3 ('on the ha''enin* of ce"tain e!ents3 the 'o4e" to cont"ol and ta%e o!e" the #ana*e#ent and o'e"ations of coo'e"ati!es "e*iste"ed (nde" it.
a) t'e NEA Ad(inistrator 'as t'e po&er to designate, su 9ect to t'e confir(ation of t'e <oard of Ad(inistrators, an Acting 1eneral @anager andAor #ro9ect !upervisor 82 ) t'e NEA is given t'e po&er of supervision and control over electric cooperatives and pursuant to suc' po&ers, NEA (a* issue orders, rules and regulations $2 c) No cooperative s'all orro& (one* fro( an* source &it'out t'e approval of t'e <oard of Ad(inistrators of t'e NEA2 and d) +'e (anage(ent of a cooperative s'all e vested in its <oard, su 9ect to t'e supervision and control of NEA &'ic' s'all 'ave t'e rig't to e represented and to participate in all <oard (eetings and deli erations and to approve all policies and resolutions.

+'ese are pri(aril* geared to e-pand t'e po&ers of t'e NEA over t'e electric cooperatives to ensure t'at loans granted to t'e( &ould e repaid to t'e govern(ent. On t'e ot'er 'and, coo'e"ati!es (nde" RA 993: a"e en!isioned to 2e self=s(fficient and inde'endent o"*ani?ations 4ith #ini#al *o!e"n#ent inte"!ention o" "e*(lation$ Second, t'e classification is ger(ane to t'e purpose of t'e la&. !ection 19/ of t'e Local 1overn(ent Code is indicative of t'e legislative intent to vest road ta-ing po&ers upon local govern(ent units and to li(it e-e(ptions fro( local ta-ation to entities specificall* provided t'erein. -he the li#ited and "est"icti!e nat("e of the ta& e&e#'tion '"i!ile*es (nde" the Local o!e"n#ent Code is consistent 4ith the State 'olic) to ens("e a(tono#) of local *o!e"n#ents and the o2<ecti!e of the Local o!e"n#ent Code to *"ant *en(ine and #eanin*f(l a(tono#) to ena2le local *o!e"n#ent (nits to attain thei" f(llest de!elo'#ent as self="eliant co##(nities and #a%e the# effecti!e 'a"tne"s in the attain#ent of national *oals$ +'e o vious intention of t'e la& is to roaden t'e ta- ase of local govern(ent units to assure t'e( of su stantial sources of revenue. /inall), !ections 19/ and 2/3 of t'e LoL1C are not li(ited to e-isting conditions and appl* e)uall* to all (e( ers of t'e sa(e class. II$ >,. the .on=I#'ai"#ent Cla(se 4as !iolated= ., +o fall &it'in t'e pro'i ition on t'e i(pair(ent of t'e o ligation of contracts, t'e c'ange (ust not onl* i(pair t'e o ligation of t'e e-isting contract, ut t'e i(pair(ent (ust e su stantial. A la& &'ic' c'anges t'e ter(s of a legal contract et&een parties, eit'er in t'e ti(e or (ode of perfor(ance, or i(poses ne& conditions, or dispenses &it' t'ose e-pressed, or aut'ori"es for its satisfaction so(et'ing different fro( t'at provided in its ter(s, is la& &'ic' i(pairs t'e o ligation of a contract and is t'erefore null and void. @oreover, to constitute i(pair(ent, t'e la& (ust affect a c'ange in t'e rig'ts of t'e parties &it' reference to eac' ot'er and not &it' respect to non4parties. In t'is case, t'e loan contract does not grant an* ta- e-e(ption in favor of t'e orro&er or t'e eneficiar*. It si(pl* states t'at t'e loan proceeds and t'e principal and interest of t'e loan, upon repa*(ent * t'e orro&er, s'all e &it'out deduction of an* ta- or fee t'at (a* e pa*a le under #'ilippine la& as s(ch ta& o" fee 4ill 2e a2so"2ed 2) the 2o""o4e" 4ith f(nds othe" than the loan '"oceeds . +'e provisions do not grant an* ta- e-e(ption in favor of an* part* to t'e contract. +'e* si(pl* s'ift t'e ta- urden, if an*, on t'e transactions under t'e loan agree(ents to t'e orro&er andAor eneficiar* of t'e loan. +'us, t'e

&it'dra&al * t'e Local 1overn(ent Code under !ections 19/ and 2/3 of t'e ta- e-e(ptions previousl* en9o*ed * #=IL.ECA et. all. does not i(pair t'e o ligation of t'e orro&er, t'e lender or t'e eneficiar* under t'e loan agree(ents as in fact, no ta- e-e(ption is granted t'erein. +ISP,SI-I@E: B=E.ECO.E, t'e instant petition is $ENIE$ and t'e te(porar* restraining order 'eretofore issued is LIC+E$. !O O.$E.E$.

charita"le #ur#oses (+imaam#ao, %0//!. @ong, 1erba"i' %ro' case@ Under the /;<& Constitution@ .Cemeteries, churches, and #arsonages or convents a##urtenant thereto, and all lands, "uildings, and im#rovements used e(clusively for religious, charita"le, or educational #ur#oses shall "e e(em#t from ta(ation.. *he #resent Constitution added .charita"le institutions, mos4ues, and non1 #rofit cemeteries. and re4uired that for the e(em#tion of .lands, "uildings, and im#rovements,. they should )7* 7)9K "e .e(clusively. "ut A9S7 @a"t#a''3G and @d%(e"t'3@ used for religious or charita"le #ur#oses. *he Constitution is worded differently. *he change should not ignored. "e

99A+7C v. CIP(o&%n"e o- Ab(a &. He(nando

Augus" +1, 19,1 6ernando, /.J. &ao o 2. 0ernardo

*here must "e $(oo- therefore of the actual and direct use of the lands, "uildings, and im#rovements for religious or charita"le #ur#oses to "e e(em#t from ta(ation.

Ab(a *a''e3 Co''e.e &. A:#%no

June 15, 19,, &aras &ao o 2. 0ernardo

SUMMARY: *he #rovincial assessor of A"ra assessed the #ro#erties of the -oman Catholic ,isho# of ,angued, Inc. for real estate ta(. *he ,isho# filed an action for declaratory relief in the CFI of A"ra. *he ,isho# merely alleged, 2I*A7U* #roof, of e(em#tion under the Constitution since the assessed #ro#erties are actually, directly and e(clusively used "y the -oman Catholic ,isho# of ,angued, Inc. for religious or charita"le #ur#oses. Aon. Judge Aernando acce#ted the allegation on its face and ruled in favor of the ,isho#. *he rovince of A"ra "rought the case to the SC. It contends that in failing to accord a hearing to it and deciding the case immediately in favor of the ,isho#, Judge Aernando failed to a"ide "y the constitutional command of #rocedural due #rocess. *he issue is whether the ta( e(em#tion should "e granted. *he SC ruled that in the a"sence of #roof of actual, direct, and e(clusive use for charita"le #ur#oses, the same should not "e granted. DOCTRINE: )#or": *o "e e(em#t from realty ta(ation, there must "e #roof of the actual and direct USC of the lands, "uildings, and im#rovement for religious or

SUMMARY: For non1#ayment of real estate ta(es, the lot and "uilding of the A"ra Oalley Junior College, Inc. was sold at #u"lic action for the satisfaction of the un#aid real #ro#erty ta(es thereon. It was thereafter sold to aterno :illare. *he College filed a com#laint in the CFI of A"ra to annul the sei8ure and sale of its #ro#erties. *he CFI ruled in favor of the government "ecause the lot and "uilding was also used for residential #ur#oses. At issue is whether or not the lot and "uilding in 4uestion are used e(clusively for educational #ur#oses, and hence, entitled to ta( e(em#tion. Section %%, #aragra#h <, Article OI of the /;<& Constitution e(#ressly grants e(em#tion from realty ta(es for F...lands, "uildings and im#rovements used e(clusively for religious, charita"le or educational #ur#oses.H *he College conteds that the -I:A-K use of the lot and "uilding for educational #ur#oses, and not the incidental use thereof, determines the e(em#tion from #ro#erty ta(es under Section %%(<!, Article OI of the /;<& Constitution.

7n the other hand, the heirs of :illare argue that the lot and "uilding were also used I)CI+C)*A99K for 7*AC- #ur#oses111as the #ermanent residence of the resident of the College and his family, and also for commercial #ur#oses, as there is a commercial esta"lishment renting the ground floor of the "uilding. *he SC ruled that the #ro#erties should "e ta(ed, not "ecause second floor of the "uilding is used for residential #ur#oses, "ut "ecause the first floor thereof is "eing used for commercial #ur#oses. Aowever, since only a #ortion is used for #ur#oses of commerce, it returned half of the assessed ta( to the school involved. DOCTRINE: )#or"@ FIdle landsH or #ro#erty used "y others for other #ur#oses although owned "y religious, educational and charita"le institutions could "e su"$ected to real estate ta( (+imaam#ao, %0//!. @ong, 1erba"i' %ro' case@ *he test of e(em#tion from ta(ation is the use of the #ro#erty for #ur#oses mentioned in the Constitution (A#ostolic refect v. City *reasurer of ,aguio!. It must "e stressed however, that while this Court allows a more li"eral and non1restrictive inter#retation of the #hrase .e(clusively used for educational #ur#oses. as #rovided for in Article OI, Section %%, #aragra#h < of the /;<& hili##ine Constitution, reasona"le em#hasis has always "een made that e(em#tion CS*C)+S to facilities which are I)CI+C)*A9 to and -CAS7)A,9K )CCCSSA-K for the accom#lishment of the main #ur#oses.

7rdinance <000, re4uiring a #erson to secure a :ayor6s #ermit "efore he can engage in "usiness, trade, or occu#ation. *he City *reasurer re4uired American ,i"le to secure the necessary #ermit and license fees. *he latter #aid under #rotest. *hereafter, American ,i"le filed a com#laint, 4uestioning the constitutionality of the 7rdinances "ecause it restrained its free e(ercise and en$oyment of the religious #rofession and worshi#. It #rayed for a refund of the #ayment made to the City of :anila. *he CFI dismissed the case. American ,i"le a##ealed to the CA "ut the CA certified the case to the SC. *he issue is whether American ,i"le is lia"le to #ay ta( to the City of :anila under 7rdinance %&%; and <000. DOCTRINE: 7rdinance %&%;@ It may "e true that in the case at "ar the #rice asked for the "i"les and other religious #am#hlets was in some instances a little "it higher than the actual cost of the same "ut this cannot mean that American ,i"le was engaged in the "usiness or occu#ation of selling said .merchandise. for #rofit. 7rdinance )o. %&%; cannot "e a##lied to American ,i"le, for this would im#air its free e(ercise and en$oyment of its religious #rofession and worshi# as well as its rights of dissemination of religious "eliefs. 7rdinance <000@ 2ith res#ect to 7rdinance )o. <000, which re4uires the o"tention the :ayor6s #ermit "efore any #erson can engage in any of the "usinesses, trades or occu#ations enumerated therein, the SC does not find that it im#oses any charge u#on the en$oyment of a right granted "y the Constitution, nor ta( the e(ercise of religious #ractices. A72COC-, since the "usiness, trade or occu#ation of American ,i"le is )7* covered "y 7rdinance <000, the 7rdinance cannot a##ly to American ,i"le.

CI- v. CA R K:CA
A!e(%"an )%b'e So"%et3 &. Man%'a
Apri +?, 1956e i! &ao o 2. 0ernardo

SUMMARY: American ,i"le Society is a foreign, non1stock, non1#rofit, religious, missionary cor#oration doing "usiness in the hili##ines. *he American ,i"le Society has "een distri"uting and selling "i"les andIor gos#el #ortions throughout the hili##ines. *he City *reasurer of :anila informed American ,i"le that it was violating 7rdinance %&%;, im#osing a ta( on the sale of "i"les, and

To'ent%no &s. Se". o- F%nan"e

9c"ober +?, 1995 Mendoza, J.

6rancis

Q *here are a lot of constitutional issues in the case. I did not include most of them since :aam said concentrate on the to#ic in the sylla"us. SUMMARY: *his is a motion for reconsideration of the / st *olentino vs. Sec. of Finance. *he same issues and arguments were made "y the #arties. *he SC sustained the validity of the law. DOCTRINE: *he SC e(#lained that the case cited "y the #etitioners involved a license ta( which is mainly for regulation, which was necessary for the e(ercise of the #rivilege or right. *he OA* is not a license ta( "ut is im#osed on the sale, "arter, lease or e(change of goods or #ro#erties or the sale or e(change of services and the lease of #ro#erties #urely for revenue #ur#oses. FACTS: -A GG/= sought to widen the ta( "ase of the e(isting OA* system and enhance its administration "y amending the )ational Internal -evenue Code. In the /st *olentino vs. Sec. of Finance case, the SC held that the statute is constitutional. *he #arties filed a motion for reconsideration arguing the same #oints in the /st case. I is again contending that "y removing the e(em#tion of the #ress from the OA* while maintaining those granted to others, the law discriminates against the #ress. It is also argued that even nondiscriminatory ta(ation of constitutionally guaranteed freedom is unconstitutional. ISSUES: 2hether or not -A GG/= violates #ress freedom and religious freedom RATIO: )o, -A GG/= does not violate freedom of the #ress and religious freedom RULING: *he SC has held that the #ress is not e(em#t from the ta(ing #ower of the State and that what the constitutional guarantee of free #ress #rohi"its are laws which single out the #ress or target a grou# "elonging to the #ress for s#ecial treatment or which in any way discriminate against the #ress on the "asis of the content of the #u"lication. Since the law granted the #ress a #rivilege, the law could take "ack the #rivilege anytime without offense to the Constitution. *he reason is "y granting e(em#tions, the State does not forever waive the e(ercise of its sovereign #rerogative. In 3ros$ean v. American ress Co, the large #a#ers were critical of Senator Auey 9ong who controlled the state legislature which enacted the license ta(. *he censorial motivation for the law was thus evident. In :innea#olis Star R *ri"une Co. v. :innesota Commissioner of -evenue, the #ress, although could have "een made lia"le for the sales ta(, was not made lia"le "ut was instead e(em#ted and later made to #ay a s#ecial use ta( on the cost of #a#er and ink which made these items the only items su"$ect to the use ta(. *he

U.S. Su#reme Court held that the differential treatment of the #ress .suggests that the goal of regulation is not related to su##ression of e(#ression, and such goal is #resum#tively unconstitutional.. It would a##ear that even a law that favors the #ress is constitutionally sus#ect *here were other e(em#tions from the OA*, such as those #reviously granted to A9, #etroleum concessionaires, enter#rises registered with the C(#ort rocessing Pone Authority, and many more are likewise totally withdrawn, in addition to e(em#tions which are #artially withdrawn, in an effort to "roaden the "ase of the ta(. *he I says that the discriminatory treatment of the #ress is highlighted "y the fact that transactions, which are #rofit oriented, continue to en$oy e(em#tion under -.A. )o. GG/=. An enumeration of some of these transactions will show that the e(em#tions are granted for a #ur#ose. As the Sol13en says, such e(em#tions are granted, in some cases, to encourage agricultural #roduction and, in other cases, for the #ersonal "enefit of the end1user rather than for #rofit. Some e(em#t transactions are@ (a! 3oods for consum#tion or use which are in their original state (agricultural, marine and forest #roducts, cotton seeds in their original state, fertili8ers, seeds, seedlings, fingerlings, fish, #rawn livestock and #oultry feeds! and goods or services to enhance agriculture (milling of #alay, corn, sugar cane and raw sugar, livestock, #oultry feeds, fertili8er, ingredients used for the manufacture of feeds!. ("! 3oods used for #ersonal consum#tion or use (household and #ersonal effects of citi8ens returning to the hili##ines! or for #rofessional use, like #rofessional instruments and im#lements, "y #ersons coming to the hili##ines to settle here. *he I asserts that it does not really matter that the law does not discriminate against the #ress "ecause .even nondiscriminatory ta(ation on constitutionally guaranteed freedom is unconstitutional.. I cites in :urdock v. ennsylvania stating that Fthe fact that the ordinance is nondiscriminatory is immaterial. A license ta( certainly does not ac4uire constitutional validity "ecause it classifies the #rivileges #rotected "y the First Amendment along with the wares and merchandise of hucksters and #eddlers and treats them all alike. Such e4uality in treatment does not save the ordinance. Freedom of #ress, freedom of s#eech, freedom of religion are in #referred #osition.H *he Court was s#eaking in that case of a '%"ense ta2, which, unlike an ordinary ta(, is !a%n'3 -o( (e.#'at%on. Its im#osition on the #ress is unconstitutional "ecause it lays a #rior restraint on the e(ercise of its right. *he OA* is different. It is not a license ta(. It is not a ta( on the e(ercise of a #rivilege, much less a constitutional right. It is im#osed on the sale, "arter, lease or e(change of goods or #ro#erties or the sale or e(change of services and the lease of #ro#erties $#(e'3 -o( (e&en#e $#($oses.

*o su"$ect the #ress to its #ayment is not to "urden the e(ercise of its right any more than to make the #ress #ay income ta( or su"$ect it to general regulation is not to violate its freedom under the Constitution. DISPOSITI*E: etitions are +IS:ISSC+. -A GG/= is valid.

vessels, the ca#tain "eing res#onsi"le for said work. Su#ervision is so direct, that no discretion is left to 9u8on nor its men. 9u8on Stevedoring filed this action to recover from defendant 2enceslao *rinidad as Internal -evenue Collector, the sum of %,>%%.E/, which it had #aid under #rotest. 1 In *rinidadJs s#ecial defense, he alleged that during the first 4uarter of the year /;%/, 9u8on was engaged in "usiness as a contractor, its gross recei#ts from said "usiness during said 4uarter amounting to %>%,%E/.<<, and that he, under the #rovisions of Section />=% of Act )o. %G//, levied and assessed on the a"ove1mentioned amount the #ercentage ta( amounting to %,>%%.E/, which 9u8on #aid under #rotest, this #rotest having "een duly overruled "y *rinidad. 1 )ote@ *he #rovisions of section />=% of Act )o. %G// had "een in force for a #eriod of E years "efore *rinidad made any effort to collect the ta(es in 4uestion. CFI :anila Judge rendered a $udgment in favor of 9u8on and against *rinidad for the said sum. From that $udgment *rinidad a##ealed. Ae contends that the CFI committed an error in holding that 9u8on is not a contractor and in rendering a $udgment in favor of 9u8on. ISSUE: Is 9u8on Stevedoring a contractor? RULING: )o, 9u8on Stevedoring Com#any is not a contractor in the sense that that word is used in Section />=% of Act )o. %G//. Aence, the ta( it #aid under #rotest was illegally collected and should "e re#aid. RATIO: 3enerally s#eaking, every #erson who enters into a contract may "e denominated a contractor, "ut evidently the 9egislature did not mean to a##ly the word .contractor,. as used in said Section />=%, to every #erson, #artnershi# or cor#oration who entered into a contract.
1 7therwise, it would not have "een necessary to have mentioned in the same section other classes of "usiness, such as warehousemen, #ro#rietors of dockyards and #ersons selling light, heat, or #ower, as well as #ersons engaged in conducting tele#hone or telegra#h line or e(changes, and #ro#rietors of steam laundries and of sho#s for the constructions and re#air of "icycles or vehicles of any kind, and kee#ers of hotels and restaurants, etc. If the general and "road meaning is to "e given to the word .contractor. as used in Section />=%, it would include the ff@ "anders, merchants, "rokers, lawyers, farmers in the sale of their #roduct, and every #erson who enter into a contractor of whatever nature or character, school1teachers in the #u"lic and #rivate schools, common la"orers who work "y the day under a contract, all #ersons loaning money u#on #romissory notes.

LUDON STE*EDORING &. TRINIDAD

)ep"e'ber 2+, 1922 Jo#nson, J. Denn

SUMMARY: 9u8on Stevedoring Com#any is engaged in the stevedoring "usiness. It loads and unloads cargo from vessels in #ort, at certain rates of charge #er unit of cargo. All the work done "y 9u8on is conducted under the su#ervision of the officers of the shi#s and under the instruction given to the 9u8onJs men "y the shi# ca#tains. *rinidad, as the Collector of Internal -evenue, levied and assessed #ercentage ta( on 9u8onJs gross recei#ts. 9u8on #aid under #rotest, and later filed this #resent action to recover from *rinidad the sum it #aid. *rinidadJs defense was that the assessment of #ercentage ta( on 9u8on was #ro#er "ecause it was a TcontractorJ under Section />=% of Act %G//. CFI held in favour of 9u8on, so *rinidad a##ealed. SC held that 9u8on was not a TcontractorJ under section />=% of Act %G//. *herefore, the ta( 9u8on #aid was illegally collected and should "e re#aid. DOCTRINE@ -evenue laws im#osing ta(es on "usiness must "e strictly construed in favour of the citi8en. *he definition of le(icogra#hers cannot always "e ado#ted as a correct meaning for statutory words and #hrases. *he intention of the 9egislature and the o"$ect which it intended to attain must "e taken into consideration for the #ur#ose of determining the meaning of words and #hrases used, rather than the set definition of le(icogra#hers. In construing a word or e(#ression in the statue susce#ti"le of two or more meanings, the court will ado#t that inter#retation most in accord with the manifest #ur#ose of the statue as gathered from the conte(t. FACTS: laintiff 9u8on Stevedoring Com#any is a cor#oration duly organi8ed under the laws of the hili##ine Islands, engaged in the stevedoring "usiness in the City of :anila. 1 Its "usiness consists of loading and unloading cargo from vessels in #ort, at certain rates of charge #er unit of cargo. All the work done "y it is conducted under the direct su#ervision of the officers of the shi#s and under the instruction given to 9u8on6s men "y the ca#tain and officers of said shi#s. In fact, no lia"ility attaches to 9u8on for the im#ro#er loading or unloading of

C7)C9USI7)@ *he word .contractor,. as used in Section />=%, must have a limited and a very restricted meaning. It cannot have the "road meaning which would include every #erson who entered into a contract. *he CFI, in its decision, relied u#on the definition given in vol. /< Cor#us Juris@ 1 7ne who agrees to do anything for anotherB one who e(ecutes #lans under a contractB one who contracts or covenants, whether with a government or other #u"lic "ody or with #rivate #arties, to furnish su##lies, or to construct works, or to erect "uildings, or to #erform any work or service, at a certain #rice to rate, as a #aving contractor, or a la"or contractorB one who contracts to #erform work, or su##ly articles on a large scale, at a certain #rice or rate, as in "uilding houses or #rovisioning troo#s, or constructing a railroad. 1 Although, in a general sense, every #erson who enters into a contract may "e called a contractor, yet the word, for want of a "etter one, has come to "e used with s#ecial reference to a #erson who, in the #ursuit of an inde#endent "usiness, undertakes to do a s#ecific #iece or $o" or work for other #ersons, using his own means and methods without su"mitting himself to control as to the #etty details. 1 The true test of a 'contractor' would seem to be that he renders the ser !ce !n the course of an !nde"endent occu"at!on# re"resent!n$ the w!ll of h!s em"lo%er onl% as to the result of h!s wor&# and not as to the means b% wh!ch !t !s accom"l!shed. @a%%ery 3. Ani"ed )"a"es Gypsu' /o.@ *he general rule, variously stated, is that when a #erson lets out work to another, the contractee reserving no control over the work or workmen, the relation of contractor and contractee e(ists and not that of master and servant, and the contractee is not lia"le for the negligence or im#ro#er e(ecution of the work "y the contractor. 0ro$n 3s. Ger'an-A'erican: a TcontractorJ is Fone who contracts or covenants either with . . . a #u"lic "ody or #rivate #arties . . . to . . . contract works or erect "uildings . . . at a certain #rice or rate.. 1 Said definition was ado#ted from the Century +ictionary. *he definition of le(icogra#hers, however, cannot always "e ado#ted as a correct meaning for statutory words and #hrases. 1 *he intention of the 9egislature and the o"$ect which it intended to attain must "e taken into consideration for the #ur#ose of determining the meaning of words and #hrases used, rather than the set definition of le(icogra#hers. 1 Re enue laws !m"os!n$ ta'es on bus!ness must be str!ctl% construed !n fa or of the c!t!(en) In construing a word or e(#ression in the statute susce#ti"le of two or more meanings, the court will ado#t that inter#retation most in accord with the manifest #ur#ose of the statute as gathered from the conte(t. 2here a #articular word is o"scure or of dou"tful meaning, taken "y itself, its o"scurity or dou"t may "e removed "y reference to associate words.

*he cases (:urray v. Currie, -ankin v. :erchants, and Aaas v. hiladel#hia! relied u#on "y *rinidad as authority do not su##ort his contention in view of the definition of a .contractor. "ecause in these cases, the stevedore was acting on its own "ehalf, and the shi#Js officers had no control over it.

DISPOSITI*E: laintiff 9u8on Stevedoring is not a contractor in the sense that that word is used in said Section />=% of Act )o. %G//, and therefore the ta( it #aid under #rotest was illegally collected and should "e re#aid. UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUU

Lo(enHo &. Posadas

June 1,, 19+@aure , J. Dea ino, J.A.D.).

Apo ogies %or "#e eng"#. : decided "o inc ude a "#e 'a""ers discussed by "#e /our" in case MaBa' as(s. T#e par" o% "#e case re e3an" "o "#e sy abus "opic is in Ra"io 5>5. : a so inc uded a discussion on "#e co'pu"a"ion o% "#e iabi i"ies. SUMMARY: *his case originates from an action in the CFI, for a ta( refund, filed "y a"lo 9oren8o (F9oren8oH!, the trustee of *homas Aanley6s (F*homasH! estate against Juan osadas, the Collector of Internal -evenue (Fthe CollectorH!. Aanley died and left a will. Initially, .J.:. :oore (F:ooreH!, was the trustee of the estate "ut he resigned, then 9oren8o was a##ointed in :oore6s stead. +uring the time of 9oren8o6s trusteeshi#, the Collector assessed an inheritance ta(. MInheritance *a( V %,0&%.G>, including #enalties for delin4uencies. *he realty was worth %G,;%0, the #ersonalty, />=&, and a deduction of >E0.E/ was allowed. *he #enalties consisted of a /' monthly interest from the time the ta( was due, u# to the date of #ayment, and a surcharge of %&' on the ta( itself.! *he Collector filed a motion in court #raying that 9oren8o "e ordered to #ay the ta(, which was granted "y the court. 9oren8o #aid under #rotest. *he Collector refused to refund the ta( so 9oren8o filed the initial action with the CFI. *he CFI dismissed the action, along with the Collector6s counterclaim for interest. 9oren8o a##ealed. *he SC decided in favor of the Collector. DOCTRINE: BTa2 ,I Gene(a' P(%n"%$'es o- Ta2at%onI Ta2at%onI Unde('3%n. T eo(3 and )as%sI Ne"ess%t3 T eo(3I )ene-%t4Re"e%&ed P(%n"%$'eC /! *a(es are essential to the very e(istence of government (+o""ins v. Crie County, etc.! %! *he o"ligation to #ay ta(es de#ends on the necessity of money for su##ort of the state, not the #rivileges en$oyed "y or even the #rotection

afforded to citi8ens (+o""ins v. Crie County! <! )o one is allowed to o"$ect to or resist #aying ta(es solely "ecause no #ersonal "enefit to him can "e #ointed out. (*homas v. 3ay, etc.! FACTS: :ay %G, /;%%@ *homas Aanley died. Ae left a will, as well as real and #ersonal #ro#erty. *he will #rovided that, among others,@ Any money left was to "e given to :atthew Aanley (F:atthew,H *homas6 ne#hew! *he real estate *homas owned was not to "e soldIdis#osed for a #eriod of /0 years after his death. *he real estate was to "e handled "y Fmy e(ecutors,H while the #roceeds were to "e given to :atthew, solely for the education of *homas6 "rothers6 children (i.e., :atthew6s si"lings! and their descendants After /0 years of *homas6 death, :atthew may dis#ose of the #ro#erty according to :atthew6s discretion. June />, /;%%@ ro"ate #roceedings for the will, as well as settlement and distri"ution of the estate were initiated in the CFI L Pam"oanga :arch /0, /;%>@ *he Pam"oanga CFI a##ointed a trustee, :oore, who was one of the e(ecutors named. Fe"ruary %;, /;<%@ :oore resigned, and 9oren8o was a##ointed in :oore6s stead. +uring 9oren8o6s incum"ency as trustee, the Collector assessed inheritance ta( worth /,><>.%> against the estate, #lus #enalties (/' monthly interest from July /, /;</ to the date of #ayment, and a surcharge of %&' on the ta(! totaling %0&%.G>. :arch /&, /;<%@ *he Collector filed a motion in the testamentary #roceedings to order 9oren8o to #ay, which was granted. Se#tem"er /&, /;<%@ 9oren8o #aid under #rotest, threatening to sue if he was not refunded. *he Collector overruled the #rotest. 9oren8o "rought a suit against the Collector with the Pam"oanga CFI. *he suit was dismissed. 9oren8o a##ealed to the SC. ISSUES: /! 2hen the inheritance ta( accrues and when it should "e satisfied %! 2hether the inheritance ta( should "e "ased on the time the testator died, or the value /0 years later <! 2hether the trustees6 com#ensation should "e deducted from the inheritance ta( >! 2hich law should "e a##lied, and whether the #rovisions of Act )o. <=0= wIc are favora"le to the ta(#ayer should "e given retroactive effect

&! (*o#ical! 2hether there has "een a delin4uency in the #ayment of inheritance ta(, and if so, should the estate #ay the additional interest RULING: /! *he inheritance ta( accrues u#on the transmission, transfer, or devolution of the decedent6s #ro#erty, made effective "y their death. %! It should "e "ased on the time the decedent died. <! )o. *he law does not re4uire such a deduction, nor did the testator intend for such. >! *he law at the time of the decedent6s death. )o, no retroactive effect can "e given since there is no clear legislative intent. &! Kes. *he estate should #ay the additional interest. (For the #art of the case related to the sylla"us to#ic, see -atio &!>!. RATIO: /! Accrual of inheritance ta( and when it should "e satisfied /. According to Sec. /&<= of the Administrative code, a ta( is im#osed on every transmission due to Finheritance, devise, "e4uest, gift mortis causa, or advance in antici#ation of inheritance, devise, or "e4uest.H %. According to the Cor#us Juris, the ta( is u#on transmission, transfer, or devolution of the decedent6s #ro#erty, made effective "y their death. <. laintiff 9oren8o6s insistence, that Art. =&G of the Civil Code is a##lica"le only to forced heirs, is erroneous since the Code itself makes no distinction. >. *he o"ligation to #ay the inheritance ta( did not arise on the date of Aanley6s death. *he situation in the instant case is that there is no fiduciary heir, first heir, legatee, or donee. ,ased on the Administrative Code (Secs. /&>< and /&>>!, the ta( should have "een #aid "efore the delivery of the #ro#erties to :oore (the first trustee! on :arch /0, /;%>. %! oint of reference for com#uting inheritance ta( /. laintiff 9oren8o argues that the inheritance ta( should "e "ased on the value of the estate in /;<%, when the real #ro#erties were to legally #ass to :atthew, the instituted heir. %. Succession takes #lace u#on the deah of the decedent. *he right of the state to ta( vests immediately, and the ta( should "e assessed "ased on the value of the estate at the time of death (CJ!. <. laintiff 9oren8o asserts the statement of a rule in the Cyclo#edia of 9aw and rocedure that when dealing with contingent remainders, ta(ation is #ost#oned until the estate vests in #ossession or the contingency is settled. Aowever, further research shows that this rule is not a"solute, and states

that follow it do not do so as much these days. ,esides, those are rules in other $urisdictions. Aere, the Court holds that transmission through inheritance is ta(a"le at the time of death des#ite #ost#onement of actual en$oyment or #ossession. <! +eduction of of com#ensation /. laintiff 9oren8o argues that com#ensation and trustee fees should also "e deducted "ased on Sec. /&<; of the Administrative Code. %. *here is no statute in the hili##ines which re4uires trustees6 commissions to "e deducted from the estate6s net value that will "e ta(ed. (CJ! <. ,esides, even though there is a testamentary trust, it is not a##arent that the testator intended that the duties of the e(ecutors and trustees "e different (In re Oanneck6s Cstate!. *o the contrary, *homas6 will e(#ressly indicates that his real estate is to "e managed and handled "y his e(ecutors until after the /01year #eriod e(#ires. >. Judicial e(#enses are e(#enses of administration "ut the com#ensation of trustees which are earned in their ca#acity as managers of the estate (not administrators!, for the "enefit of legatees or devisees, does not come within the e(#enses of administration that are e(em#ted from ta(ation. >! 7n the law governing the case and whether retroactive effect can "e given if favora"le /. In the instant case, the Collector used Sec. /&>> of the Administrative Code (as amended "y Sec. < of Act )o. <=0=!, which came into force on January /, /;<0. Aowever, the law in force at the time of the decedent6s death was Sec. /&>> of the Administrative Code, amended under Act )o. <0</, which took effect on :arch ;, /;%%. %. Inheritance ta(ation is governed "y the law in force at the time of the decedent6s death (Cooley on *a(ation. <. *a( statues may "e made to have retroactive effect, and this is $ust one of the incidents of social life (Seattle v. Welleher!. Aowever, the legislative intent for such retroactive effect must "e #erfectly clear (Scwa" v. +oyle, etc.! In the instant case, no such legislative intent has "een shown. >. As to the allegation of the rule6s #enal nature, the Court su"scri"es to the view that a statute is #enal when it /! im#oses a #unishment, %! for an offense against the state, <! which the C(ecutive has the #ower to #ardon under the Constitution. *he instant case deals with a revenue law. -evenue laws, in general, that im#ose ta(es collected "y means ordinarily resorted to for ta(1collection are not #enal laws.

&!2hether additional interest must "e #aid "y the estate /. *he Court has #reviously held (in US v. 9a"adan! that mere failure to #ay one6s ta( does not make one delin4uent as a ta(#ayer unless and until the whole #eriod for #aying the ta(, where no #enalties are yet im#osed, ela#ses without #ayment "eing made. %. *he Collector argues that it is the duty of the e(ecutor (:oore, then su"se4uently, 9oren8o! to #ay the inheritance ta( "efore the decedent6s #ro#erty is delivered to the trustee, "ecause delivery to the trustee is delivery to the cestui 4ue trust, who is the "eneficiary contem#lated in Sec. /&>>("! of the Administrative Code. <. *he Court agrees with the Collector. A testamentary trust has "een created, des#ite the lack of the words FtrustH or Ftrustee.H )o s#ecific words are re4uired to create a testamentary trust (CJ!. In the instant case, the testator ordered in his will that certain #ro#erties "e ke#t undis#osed for a fi(ed #eriod of time, with a s#ecific #ur#ose stated. *he #ro"ate court was correct in a##ointing a trustee. :oore "ecame trustee on :arch /0, /;%%. 7n that date, the trust estate was vested in him. 7n that same day, the inheritance ta( should have "een #aid to avoid #enalties. In effect, the #ro#erty has "een delivered to the successor, through the trustee acting as the cestui 4ue trust. >. u"lic #olicy was also considered in this case. *o allow a contrary decision would "e disastrous, leaving the #ayment of ta(es virtually at the whim of the #eo#le. /. *a(es are essential to the government6s e(istence (+o""ins v. Crie County, etc.! %. *he o"ligation to #ay ta(es de#ends on the necessity of money for su##ort of the state, not the #rivileges en$oyed "y or even the #rotection afforded to citi8ens (+o""ins v. Crie County! <. )o one is allowed to o"$ect to or resist #aying ta(es solely "ecause no #ersonal "enefit to him can "e #ointed out. (*homas v. 3ay, etc.! >. 3enerally, ta( statutes should "e construed as to avoid the chances of ta( evasion ha##ening. &. art of the #u"lic #olicy nature of this case revolves around the #rom#t #ayment of ta(es. /. )o court is allowed to grant in$unctions to restrain the collection of internal revenue ta(es (Administrative Code!. )ot even during times of u#heaval like riots (9im Co Chui v. osadas! could the Collector e(tend the time for #aying.

Any delay could have disastrous conse4uences (+ows v. Chicago, etc.! &! *he delin4uency occurred on :arch /0, /;%>, when :oore "ecame trustee.)o #ayment was made within /0 days after notice and demand "y the Collector, so a surcharge of %&' should "e added #ursuant to the Administrative Code. +emand was made u#on :oore on 7cto"er /=, /;</. *he date for #ayment was fi(ed to )ovem"er <0, /;</. *his was a holiday so the tenth day for #aying fell on +ecem"er /, /;</. )o #ayment was made. *herefore, the estate is lia"le for the ta( and interest due. Com#uting the lia"ilities@ /! ro#erties at time of death@ -eal ( %G,;%0! X ersonal (7/>=&! V %;,<E& %! ro#erties ( %G,;%0! less allowa"le deductions ( >E0.E/! V %E,;0>./; ()et estate su"$ect to inheritance ta(! <! Com#uting the *a( M)ote@ rimary ta( (/' on first /0,000 #esos, %' on amount "y wIc "eneficiary e(ceeds /0,000 "ut not e(ceeding <0,<000, #lus additional two hundred #ercentum!N /' of /0,000 V /00 %' of /E,/;0>./; V <GE.0E add additional %00 #ercentum ( ;&=./=! V /,><>.%> (#rimary ta(, correctly com#uted "y the Collector! >! Com#uting the F enaltiesH (sums collecti"le (total of %,%00./;! under Sec. /&>> of the Admin Code@ />=&.</ (/%' interest #er annum, from date of delin4uency (:arch /0, /;%>! until date of #ayment under #rotest (Se#tem"er /&, /;<%! (E years, = mos., & days! X G%>.EE (%&' surcharge on ta( and interest! X /0 (com#romise sum fi(ed "y defendant! &! Add ta( and F#enaltiesH@ /,><>.%> X %,%00./; V <,=<>.>< =! 9oren8o has already #aid %,0&%.G>. So only /&E/.=; is still legally due from the estate. *his amount e(ceeds the counterclaim "y <;0.>%,which the Court cannot give since the Collector did not claim that amount. *herefore, the estate6s lia"ility is only /,/;/.%G. DISPOSITI*E: :7+IFIC+ L Cstate lia"le for /,/;/.%G DISSENTING OPINION@ )IA CONCURRING OPINION@ Oilla1-eal@ (and I 4uote,! FI concur in the result.H

%.

May 29, 1992 &adi a, J. Denn

S#!!a(3: Umali, as a ta(#ayer, and 3oros#e et al., filed se#arate #etitions for 'anda'us and #rohi"ition to com#el res#ondents Cstanislao (Secretary of Finance! and 7ng (Commissioner of Internal -evenue! to im#lement -A G/=G with res#ect to income earned or received on or after / January /;;/ or as of ta(a"le year ending </ +ecem"er /;;/, and to en$oin them from im#lementing -evenue -egulation )o. /1;%. -A G=/G is an act which ad$usted the "asic #ersonal and additional e(em#tions allowa"le to individuals for income ta( #ur#oses to the #overty threshold level. *his Act was a##roved "y the resident on /; +ecem"er /;;/ and #u"lished on /> January /;;%. Under Section < of said Act, it states that Fthis act shall take effect u#on its a##rovalH. Aowever, res#ondents #romulgated --. )o. /1;% which contained a #rovision stating that FMtNhese regulations shall take effect on com#ensation income from January /, /;;%H. *he SC held that -A G/=G took effect on Jan <0, /;;%, /& days after its #u"lication, and hence, should cover or e(tend to com#ensation income earned or received during calendar year /;;/. Do"t(%ne: M)ot e(#ressly stated in the case.N 2hen there is dou"t as to the sco#e or coverage of a ta( e(em#tion under the law, the court can look into the contents of the legislative $ournal since such can #rovide an indication of the intent of Congress in enacting the law. FACTS: *hese consolidated cases are #etitions for 'anda'us and #rohi"ition. 1 etitioner -eynaldo Umali, a ta(#ayer and a resident 7riental :indoro, filed a #etition for 'anda'us for himself and in "ehalf all individual Fili#ino ta(#ayers, to C7: C9 the res#ondents Aon. Jesus Cstanislao (Sec. of Finance! and Aon. Jose 7ng (Commissioner of Internal -evenue! to im#lement -A G/=G with res#ect to ta(a"le income of individual ta(#ayers earned or received on or after / January /;;/ or as of ta(a"le year ending </ +ecem"er /;;/. 1 etitioners 3oros#e et al. likewise filed a se#arate #etition for 'anda'us and #rohi"ition on their "ehalf as well as for those other individual ta(#ayers who might "e similarly situated, to com#el the CIto im#lement the mandate of -A G/=G ad$usting the #ersonal and additional e(em#tions allowa"le to individuals for income ta( #ur#oses in regard to income earned or received in /;;/, and to en$oin res#ondents from im#lementing -evenue -egulations )o. /1;%.

UMALI &. ESTANISLAO

Congress enacted -e#. Act G/=G<. *his Act -A G/=G ad$usted the #ersonal and additional e(em#tions allowa"le to individuals for income ta( #ur#oses. In Section <, said Act #rovides@ *Th!s act shall ta&e effect u"on !ts a""ro al)+ 1 *he said act was signed and a##roved "y the resident on /; +ecem"er /;;/ and #u"lished on /> January /;;% in .:alaya. a news#a#er of general circulation. 7n %= +ecem"er /;;/, res#ondents #romulgated -evenue -egulations )o. /1;%, the #ertinent #ortions of which read as follows@
Sec. /. SC7 C LL ursuant to Sections %>& and G% of the )ational Internal -evenue Code in relation to -e#u"lic Act )o. G/=G, these -egulations are here"y #romulgated #rescri"ing the collection at source of income ta( on co'pensa"ion inco'e paid on or a%"er January 1, 1992Y. ((( ((( ((( Sec. <. Section E of -evenue -egulations )o. =1E% is amended "y -evenue -egulations )o. /1E= is here"y further amended to read as follows@ Section E. LL -ight to claim the following e(em#tions. . . . Cach em#loyee shall "e allowed to claim the following amount of e(em#tion with res#ect to co'pensa"ion paid on or a%"er January 1, 1992. ((( ((( ((( Sec. &. CFFCC*IOI*K. LL T#ese regu a"ions s#a "a(e e%%ec" on co'pensa"ion inco'e %ro' January 1, 1992.

1. /a "e! 3 /:R (a case which is on all fours with this case as to the first issue!@
In the case of Tanada 3s. Tu3era, Mthe SCN construed Article % of the Civil Code and laid down the rule, FYthe clause .unless it is otherwise #rovided. refers to the date of effectivity and not to the re4uirement of #u"lication itself, which cannot in any event "e omitted. *his clause does not mean that the legislator may make the law effective immediately u#on a##roval, or on any other date without its #revious #u"lication. u"lication is indis#ensa"le in every case, "ut the legislature may in its discretion #rovide that the usual fifteen1day #eriod shall "e shortened or e(tended. . . .H 1 Since the -A involved in the Calte( case has no s#ecific date for its effectivity and neither can it "ecome effective u#on its a##roval notwithstanding its e(#ress statement, following Article % CC and *anada v. *uvera, that -A took effect /& days after its #u"lication date. 1 CASC A* ,A-@ Accordingly, -AG/=G took effect on <0 January /;;%, which is after /& days following its #u"lication on /> January /;;% in :alaya. %. SC@ -AG/=G should cover or e(tend to com#ensation income earned or received during calendar year /;;/. 1 Sec. %;, #ar. (9!, Item )o. > of the )I-C, as amended, #rovides@
Apon "#e reco''enda"ion o% "#e )ecre"ary o% 6inance, "#e &residen" s#a au"o'a"ica y ad*us" no" 'ore o%"en "#an once e3ery "#ree years, "#e persona and addi"iona e!e'p"ions "a(ing in"o accoun", a'ong o"#ers, "#e 'o3e'en" in consu'er price indices, e3e s o% 'ini'u' $ages, and bare subsis"ence e3e s.

ISSUES: /. 27) -AG/=G took effect u#on its a##roval "y the resident (/; +ecem"er /;;/!, or /& days following its #u"lication on a news#a#er of general circulation (<0 January /;;%! %. Assuming that -AG/=G took effect on <0 January /;;%, 27) the said law nonetheless covers or a##lies to com#ensation income earned or received during calendar year /;;/

1
RULING: /. -AG/=G took effect on <0 January /;;%, which is after /& days following its #u"lication on /> January /;;% in the :alaya. %. -AG/=G should cover or e(tend to com#ensation income earned or received during calendar year /;;/. RATIO:
/

Since the #ersonal and additional e(em#tions of individual ta(#ayers were last ad$usted in 19,4, the resident, u#on the recommendation of the Finance Secretary, could have ad$usted the #ersonal and additional e(em#tions in 19,9 "y increasing the same even without any legislation #roviding for such ad$ustment. ,ut the resident did not. Aowever, A, %E;G0, which was su"se4uently enacted "y Congress as -AG/=G, was introduced in the Aouse in 19,9 although its #assage was delayed and it did not "ecome effective law until <0 Jan /;;%.

A $e(#sa' o- t e s$onso(s %$ (e!a(Js of Cong. Aernando ,. ere8, Chairman of the Aouse Committee on 2ays and :eans, on A, %E;G0, #rovides an %nd%"at%on o- t e %ntent o- Con.(ess %n ena"t%n. RA =,?=. *he #ertinent legislative $ournal contains the following@
Mr. &erez e!p ained "#a" "#e 0i pro3ides %or increased persona addi"iona e!e'p"ions "o indi3idua s in 3ie$ o% "#e #ig#er s"andard o% i3ing. T#e 0i , #e s"a"ed, i'i"s "#e a'oun" o% inco'e o% indi3idua s sub*ec" "o inco'e "a! "o enab e "#e' "o spend %or basic necessi"ies and #a3e 'ore disposab e inco'e. !!! !!! !!! .e added "#a" in% a"ion #as raised "#e basic necessi"ies and "#a" i" #ad been "#ree years since "#e as" e!e'p"ion ad*us"'en" in 19,4. !!! !!! !!!

-A G/=G is entitled .A) AC* A+JUS*I)3 *AC ,ASIC C-S7)A9 A)+ A++I*I7)A9 CSC: *I7)S A9972A,9C *7 I)+IOI+UA9S F7- I)C7:C *AS U- 7SCS *7 *AC 7OC-*K *A-CSA79+ 9COC9, A:C)+I)3 F7- *AC U- 7SC SCC*I7) %;, A-A3-A A (9!, I*C:S (/! A)+ (%! (A! 7F *AC )A*I7)A9 I)*C-)A9 -COC)UC C7+C, AS A:C)+C+, A)+ F7- 7*ACU- 7SCS..

.e s"ressed "#e necessi"y o% passing "#e 'easure "o 'i"iga"e "#e e%%ec"s o% "#e curren" in% a"ion and o% "#e i'p e'en"a"ion o% "#e sa ary s"andardiza"ion a$C .e "#en rei"era"ed "#a" "#e increase in "#e prices o% co''odi"ies #as eroded "#e purc#asing po$er o% "#e peso despi"e "#e recen" sa ary increases and e'p#asized "#a" "#e 0i $i ser3e "o co'pensa"e "#e ad3erse e%%ec"s o% in% a"ion on "#e "a!payers. . . . Ot e( obse(&at%ons b3 t e Co#(t 1 -AG/=G s#eaks of the ad$ustments that it #rovides for, as ad$ustments . "o "#e po3er"y "#res#o d e3e .. Certainly, .the #overty threshold level. is the #overty threshold level at the time -AG/=G was enacted "y Congress, not #overty threshold levels in %u"uro, at which time there may "e need of further ad$ustments in #ersonal e(em#tions. 1 *he #ersonal and additional e(em#tions #rovided under -AG/=Gare %i!ed a'oun"s to which an individual ta(#ayer is entitled. In the end, it is the lower1income and the middle1income grou#s of ta(#ayers who stand to "enefit most from the increase of #ersonal and additional e(em#tions. *o that e(tent, the act is a so"%a' 'e.%s'at%on intended to alleviate in #art the #resent economic #light of the lower income ta(#ayers. It is intended to remedy the inade4uacy of the e(isting #ersonal and additional e(em#tions for individual ta(#ayers.

'a(ing au"#ori"y #as spo(en and "#e /our" can no" re%use "o app y "#e a$-'a(erBs $ords. D#e"#er or no" "#e go3ern'en" can a%%ord "#e drop in "a! re3enues resu "ing %ro' suc# increased e!e'p"ions $as %or /ongress =no" "#e /our"> "o decide. 2AC-CF7-C, Sections /, < and & of -evenue -egulations )o. /1;% which #rovide that the regulations shall take effect on com#ensation income earned or received from / January /;;% are here"y SC* ASI+C. *hey should take effect on com#ensation income earned or received from / January /;;/.
Since this decision is #romulgated after /& A#ril /;;%, the individual ta(#ayers entitled to the increased e(em#tions on com#ensation income earned during calendar year /;;/ who may have filed their income ta( returns on or "efore /& A#ril /;;% (later e(tended to %> A#ril /;;%! without the "enefit of such increased e(em#tions, are entitled to the corres#onding ta( refunds andIor credits, and res#ondents are ordered to effect such refunds andIor credits.

-AG/=G says that the increased #ersonal e(em#tions that it #rovides for shall "e availa"le thenceforth, that is, after said -A shall have "ecome effective. o *hese e(em#tions are availa"le u#on the filing of #ersonal income ta( returns which is, under the )I-C, done not later than the /&th day of A#ril after the end of a calendar year. o *hus, under -AG/=G, which "ecame effective on <0 January /;;%, the increased e(em#tions are literally availa"le on or be%ore 15 Apri 1992 (though not "efore <0 January /;;%!. ,ut these increased e(em#tions can "e availa"le on /& A#ril /;;% onl% !n res"ect of com"ensat!on !ncome earned or rece! ed dur!n$ the calendar %ear ,--,.
*he #ersonal e(em#tions cannot "e regarded as availa"le in res#ect of com#ensation income received during the 199? calendar year since the ta( due in res#ect of said income had already accrued, and "een #resuma"ly #aid. *o make -AG/=G refer "ack to income received during /;;0 would re4uire language e(#licitly retroactive in #ur#ort and effect, such language is sim#ly not found in the law.

CIR &. SOLID)ANK

;o3e'ber 25, 2??+ &anganiban, J. Denn S#!!a(3: Solid"ank filed its Zuarterly ercentage *a( -eturns reflecting its gross recei#ts. It later alleged that the total included gross recei#ts from #assive income which was already su"$ected to %0' F2*. In one case, the C*A held that the %0' F2* should not form #art of its ta(a"le gross recei#ts for #ur#oses of com#uting the gross recei#ts ta(. Solid"ank, relying on the strength of this decision, filed with the ,I- a letter1re4uest for the refund or ta( credit. It also filed a #etition for review with the C*A, which ordered CI- to refund the over#aid amounts. 7n a##eal, the CA stated that the %0' F2* did not form #art of the ta(a"le gross recei#ts "ecause the F2* was not a"t#a''3 received "y the "ank "ut was directly remitted to the government. *he CI- claims that although the F2* was not actually received "y Solid"ank, the fact that the amount redounded to the "ankJs "enefit makes it #art of the ta(a"le gross recei#ts in com#uting the 3ross -ecei#ts *a(. Solid"ank says the CA ruling is correct. SC ruled in favour of CI- and held that the F2* forms #art of the ta(a"le gross recei#ts for #ur#oses of com#uting 3ross -ecei#ts *a(. Do"t(%ne: In the construction and inter#retation of ta( statutes and of statutes in general, the #rimary consideration is to ascertain and give effect to the intention of the legislature. *he Court ought to im#ute to the lawmaking "ody the intent to o"ey the constitutional mandate, as long as its enactments fairly admit of such construction. 2hile courts will not enlarge "y construction the governmentJs #ower of ta(ation, neither will they #lace u#on ta( laws so loose a construction as to #ermit evasions, merely on the "asis of fanciful and insu"stantial distinctions. 2hen the legislature im#oses a ta( on income and another on "usiness, the im#osition must "e res#ected. *he *a( Code should "e so construed, if need "e, as to avoid em#ty

*he #ersonal e(em#tions as increased "y -AG/=G cannot "e regarded as availa"le on y in res#ect of com#ensation income received during 1992, as the im#lementing -evenue -egulations )o. /1;% #ur#ort to #rovide. o -evenue -egulations )o. /1;% would in effect #ost#one the availa"ility of the increased e(em#tions to / January1/& A#ril /;;<, and thus literally defer the effectivity of -AG/=G to / January /;;<. o *he o"$ective of the res#ondents in #ost#oning through -- /1;% the legal effectivity of -AG/=G is, of course, entirely understanda"le L to defer to /;;< the reduction of governmental ta( revenues. 0u" "#e a$-

declarations or #ossi"ilities of crafty ta( evasion schemes. A ta(ing act will "e construed, and the intent and meaning of the legislature ascertained, from its language. Its clarity and im#lied intent must e(ist to u#hold the ta(es as against a ta(#ayer in whose favor dou"ts will "e resolved. .

CTA De"%s%on: 7rdered CI- to refund in favor of Solid"ank the amount of its over#aid 3-* for the year /;;&. *he C*A relied on the Asian 0an( case. CA De"%s%on: affirmed C*A. *he %0' F2* on a "ankJs interest income did not form #art of the ta(a"le gross recei#ts in com#uting the &' 3-*, "ecause the F2* was no" ac"ua y recei3ed "y the "ank "ut was directly remitted to the government. ISSUE: 27) the %0' F2* on a "ankJs interest income forms #art of the ta(a"le gross recei#ts in com#uting the &' gross recei#ts ta(. RULING: *he %0' F2* on a "ankJs interest income forms #art of the ta(a"le gross recei#ts in com#uting the &' gross recei#ts ta(. RATIO: CI-@ Although the %0' F2* on Solid"ankJs interest income was not actually received "y it "ecause it was remitted directly to the government, the fact that the amount redounded to the "ankJs "enefit makes it #art of the ta(a"le gross recei#ts in com#uting the &' 3-*. S79I+,A)W@ *he CA correctly ruled otherwise. SC@ agrees with the CI-. 1 /#ina 0an(ing /orpora"ion 3. /A@ *he amount of interest income withheld in #ayment of the %0' F2* forms #art of gross recei#ts in com#uting for the 3-* on "anks. The /0T and the 1RT are 2 d!fferent ta'es 1 *he &' 3-* is im#osed "y Section //;> of the *C. It is included under F*itle O. 7ther ercentage *a(esH of the *C and is not su"$ect to withholding. 1 7n the other hand, the %0' F2* falls under Section %>(e!(/! of F*itle II. *a( on Income.H It is a ta( on #assive income, deducted and withheld at source "y the #ayor1cor#oration andIor #erson as withholding agent. 1 A #erusal of these #rovisions clearly shows that two t%"es of ta'es are !n ol ed !n the "resent contro ers%: (/! the 3-*, which is a #ercentage ta(B and (%! the F2*, which is an income ta(. As a "ank, #etitioner is covered "y "oth ta(es.

Court.s Introduct!on
1 Under the *a( Code (*C!, the earnings of "anks from F#assiveH income are su"$ect to a %0' final withholding ta( (F2*!. *his ta( is withheld at source and is thus not actually and #hysically received "y the "anks, "ecause it is #aid directly to the government "y the entities from which the "anks derived the income. A#art from the %0' F2*, "anks are also su"$ect to a &' gross recei#ts ta( (3-*! which is im#osed "y the *C on their gross recei#ts, including the F#assiveH income. Since the %0' F2* is constructively received "y the "anks and forms #art of their gross recei#ts or earnings, it follows that it is su"$ect to the &' 3-*. After all, the amount withheld is #aid to the government on their "ehalf, in satisfaction of their withholding ta(es. *hat they do not actually receive the amount does not alter the fact that it is remitted for their "enefit in satisfaction of their ta( o"ligations. o If there were no withholding ta( system in #lace in the hil., this %0' #ortion of the F#assiveH income of "anks would actually "e #aid to the "anks and then remitted "y them to the government in #ayment of their income ta(. *he institution of the withholding ta( system does not alter the fact that the %0' #ortion of their F#assiveH income constitutes #art of their actual earnings, e(ce#t that it is #aid directly to the government on their "ehalf in satisfaction of the final income ta( due on their F#assiveH incomes.

. FACTS: For the calendar year /;;&, Solid"ank seasona"ly filed its Zuarterly ercentage *a( -eturns reflecting gross recei#ts in the total amount of /,>G>,=;/,=;<.>> with corres#onding gross recei#ts ta( #ayments in the sum of G<,G<>,&E>.=0. Solid"ank alleges that the total gross recei#ts included the sum of <&0,E0G,EG&./& re#resenting gross recei#ts from #assive income which was already su"$ected to %0' F2*. Jan <0, /;;=@ *he C*A rendered a decision (Asian 0an( /orpora"ion 3s. /:R! wherein it was held that the %0' F2* on a "ankJs interest income should not form #art of its ta(a"le gross recei#ts for #ur#oses of com#uting the gross recei#ts ta(. June /;;G@ 7n the strength of the said decision, Solid"ank filed with the ,I- a letter1re4uest for the refund or issuance of a ta( credit certificate in the amount re#resenting allegedly over#aid gross recei#ts ta( for the year /;;&. 2ithout waiting for an action from the CI-, Solid"ank on the same day filed a #etition for review with the C*A to $udicially claim for the refund of their over#aid internal revenue ta(.

FSCC. //;. Ta! on ban(s and non-ban( %inancia in"er'ediaries. L *here shall "e collected a ta( on gross recei#ts derived from sources within the hili##ines "y all "anks and non1"ank financial intermediaries in accordance with the following schedule@ F(a! 7n interest, commissions and discounts from lending activities as well as income from financial leasing, on the "asis of remaining maturities of instruments from which such recei#ts are derived. ((( ((( ((( F)othing in this Code shall #reclude the Commissioner from im#osing the same ta( herein #rovided on #ersons #erforming similar "anking activities.H

A #ercentage ta( is a national ta( measured "y a certain #ercentage of the gross selling #rice or gross value in money of goods sold, "artered or im#ortedB or of the gross recei#ts or earnings derived "y any #erson engaged in the sale of services. It is not su"$ect to withholding. An income ta(, on the other hand, is a national ta( im#osed on the net or the gross income reali8ed in a ta(a"le year. It is su"$ect to withholding.

In our withholding ta( system, #ossession is ac4uired "y the #ayor as the withholding agent of the government, "ecause the ta(#ayer ratifies the very act of #ossession for the government. *here is thus constructive recei#t. There be!n$ construct! e rece!"t of such !ncome# "art of wh!ch !s w!thheld# that !ncome !s !ncluded as "art of the ta' base u"on wh!ch the 1RT !s !m"osed)

In a withholding ta( system, the #ayee is the ta(#ayer, the #erson on whom the ta( is im#osedB the #ayor, a se#arate entity, acts as no more than an agent of the government for the collection of the ta( in order to ensure its #ayment. 7"viously, this amount that is used to settle the ta( lia"ility is deemed sourced from the #roceeds constitutive of the ta( "ase. *hese #roceeds are either actual or constructive. Since there is no actual recei#t "y the "ank of the amount withheld, what needs to "e determined is !f there !s construct! e rece!"t thereof. Construct! e Rece!"t 3ersus Actual Rece!"t CI-@ *here is constructive recei#t of the interest on de#osits and yield on de#osit su"stitutes. Solid"ank@ Cven if there is, Section >(e! of -- /%1E0 governs the situation. 1 Said #rovision states that the ta( rates to "e im#osed on the gross recei#ts of "anks, non1"ank financial intermediaries, financing com#anies, and other non1"ank financial intermediaries not #erforming 4uasi1"anking activities shall "e "ased on all items of income actually received. 1 Since there is no actual recei#t, the F2* is not to "e included in the ta( "ase for com#uting the 3-*. SU -C:C C7U-* a##lied on the recei#t of income the rules on actual and constructive #ossession #rovided in Arts. &</& and &<%= CC. 1 Art. &</ CC clearly #rovides that the ac4uisition of the right of #ossession is through the #ro#er acts and legal formalities esta"lished therefor. *he withholding #rocess is one such act. *here may not "e actual recei#t of the income withheldB however, as #rovided for in Art. &<%, #ossession "y any #erson without any #ower whatsoever shall "e considered as ac4uired when ratified "y the #erson in whose name the act of #ossession is e(ecuted.
;

Man!la 4oc&e% Club Ina""l!cable /:R 3. Mani a Joc(ey / ub@ the term Fgross recei#tsH shall not include money which, although delivered, has "een es#ecially earmarked "y law or regulation for some #erson other than the ta(#ayer. 1 F3ross recei#tsH refer to the total, as o##osed to the net, income. *hese are therefore the total recei#ts "efore any deduction for the e(#enses of management. 2e"sterJs ;e$ :n"erna"iona Dic"ionary, in fact, defines gross as Fwhole or entire.H 1 Statutes ta(ing the gross Frecei#ts,H Fearnings,H or FincomeH of #articular cor#orations are found in many $urisdictions. *a( thereon is generally held to "e within the #ower of a state to im#oseB or constitutional, unless it interferes with interstate commerce or violates the re4uirement as to uniformity of ta(ation. Gi3en "#a" a "a! is i'posed upon "o"a receip"s and no" upon ne" earnings, s#a "#e inco'e $i"##e d be inc uded in "#e "a! base upon $#ic# suc# "a! is i'posedE F7)G 1 Mani a Joc(ey / ub does not a##ly to this case. 7ar'ar(ing is not the same as $i"##o ding. Amounts ear'ar(ed do not form #art of gross recei#ts, "ecause, although delivered or received, these are "y law or regulation reserved for some #erson other than the ta(#ayer. 7n the contrary, amounts $i"##e d form #art of gross recei#ts, "ecause these are in cons"ruc"i3e #ossession and not su"$ect to any reservation, the withholding agent "eing merely a conduit in the collection #rocess. 1 *he amounts in the :anila Jockey case never "ecame the #ro#erty of the race track. Unlike these amounts, the interest income that had "een $i"##e d for the government "ecame #ro#erty of the financial institutions u#on cons"ruc"i3e #ossession. ossession was indeed ac4uired, since it was ratified "y the financial institutions in whose name the act of #ossession had "een e(ecuted. 1 It is ownershi# that determines whether interest income forms #art of ta(a"le gross recei#ts. ,eing originally owned "y these financial institutions as #art of their interest income, the F2* should form #art of their ta(a"le gross recei#ts. 1 )es%des, t ese a!o#nts w!thheld a(e %n $a3!ent o- an %n"o!e ta2 '%ab%'%t3, 1 %" %s d%--e(ent -(o! a $e("enta.e ta2 '%ab%'%t3. o /:R 3. Tours )pecia is"s, :nc .@ 3ross recei#ts su"$ect to ta( under the *C do not include monies or recei#ts entrusted to the ta(#ayer which do not "elong to them and do not redound to

ossession is ac4uired "y the material occu#ation of a thing or the e(ercise of a right, or "y the fact that it is su"$ect to the action of our will, or "y the #ro#er acts and legal formalities esta"lished for ac4uiring such right. % ossession may "e ac4uired "y the same #erson who is to en$oy it, "y his legal re#resentative, "y his agent, or "y any #erson without any #ower whateverB "ut in the last case, the #ossession shall not "e considered as ac4uired until the #erson in whose name the act of #ossession was e(ecuted has ratified the same, without #re$udice to the $uridical conse4uences of nego"ioru' ges"io in a #ro#er case.

the ta(#ayerJs "enefitB and it is not necessary that there must "e a law or regulation which would e(em#t such monies and recei#ts within the meaning of gross recei#ts under the *C. In the construction and inter#retation of ta( statutes and of statutes in general, the #rimary consideration is to ascertain and give effect to the intention of the legislature. Courts ought im#ute to the lawmaking "ody the intent to o"ey the constitutional mandate, as long as its enactments fairly admit of such construction. In fact, F( ( ( no ta( can "e levied without e(#ress authority of law, "ut the statutes are to receive a reasona"le construction with a view to carrying out their #ur#ose and intent.H 1 A look into Sections %>(e!(/! and //; of the *C would show that the first im#oses an income ta(B the second, a #ercentage ta(. *he legislature clearly intended two different ta(es. *he F2* is a ta( on #assive income, while the 3-* is on "usiness. *he withholding of one is not e4uivalent to the #ayment of the other. 2hile courts will not enlarge "y construction the governmentJs #ower of ta(ation, neither will they #lace u#on ta( laws so loose a construction as to #ermit evasions, merely on the "asis of fanciful and insu"stantial distinctions. 2hen the legislature im#oses a ta( on income and another on "usiness, the im#osition must "e res#ected. *he *a( Code should "e so construed, if need "e, as to avoid em#ty declarations or #ossi"ilities of crafty ta( evasion schemes. A ta(ing act will "e construed, and the intent and meaning of the legislature ascertained, from its language. Its clarity and im#lied intent must e(ist to u#hold the ta(es as against a ta(#ayer in whose favor dou"ts will "e resolved. )o such dou"ts e(ist with res#ect to the *a( Code, "ecause the income and #ercentage ta(es we have cited earlier have "een im#osed in clear and e(#ress language for that #ur#ose. On ta' e'em"t!on Solid"ank@ I am entitled to a refund on the "asis of e(cess 3-* #ayments. SC@ 2e disagree. 1 *a( refunds are in the nature of ta( e(em#tions. Such e(em#tions are strictly construed against the ta(#ayer, "eing highly disfavored and almost said Fto "e odious to the law.H Aence, those who claim to "e e(em#t from the #ayment of a #articular ta( must do so under clear and unmistaka"le terms found in the statute. *hey must "e a"le to #oint to some #ositive #rovision, not merely a vague im#lication, of the law creating that right. 1 Since ta( refunds are in the nature of ta( e(em#tions, these are deemed to "e Fin derogation of sovereign authority and to "e construed s"ric"issi'i *uris against the #erson or entity claiming the e(em#tion.H 1 *he /;EG Constitution itself #rovides for the mechanism for granting ta( e(em#tions. *hey certainly cannot "e granted "y im#lication or mere administrative regulation. In the instant case, Solid"ank has not "een a"le to

satisfactorily show that its F2* on interest income is e(em#t from the 3-*. No 5ouble Ta'at!on *he two ta(es, su"$ect of this litigation, are different from each other. *he "asis of their im#osition may "e the same, "ut their natures are different. *he Court finds that there is no dou"le ta(ation. 1 +ou"le ta(ation means ta(ing the same #ro#erty twice when it should "e ta(ed only onceB that is, Fta(ing the same #erson twice "y the same $urisdiction for the same thing.H 7therwise descri"ed as Fdirect du#licate ta(ation,H the two ta(es must "e im#osed on the same su"$ect matter, for the same #ur#ose, "y the same ta(ing authority, within the same $urisdiction, during the same ta(ing #eriodB and they must "e of the same kind or character.
o o % different su"$ect matters@ F2* 1 the #assive income generated in the form of interest on de#osits and yield on de#osit su"stitutes, 3-* 1 the #rivilege of engaging in the "usiness of "anking Although "oth ta(es are national in sco#e and are im#osed "y the same ta(ing authority for the same #ur#ose of raising revenues, the ta(ing #eriods they affect are different. F2* is deducted and withheld as soon as the income is earned, 3-* is neither deducted nor withheld, "ut is #aid only after every ta(a"le 4uarter in which it is earned. +ifferent kinds or characters@ F2* 1 an income ta( su"$ect to withholding, 3-* 1 a #ercentage ta( not su"$ect to withholding.

DISPOSITI*E: CA +ecision -COC-SC+ and SC* ASI+C. *he %0' F2* on a "ankJs interest income forms #art of the ta(a"le gross recei#ts in com#uting the &' gross recei#ts ta(.

Collector v. 9a *ondena Serafica v. *reasurer of 7rmoc -o(as v. -afferty ecson v. CA CI- v. CA CI- v. *elefunken
CIR &. LHUILLIER
Ju y 15, 2??+

Da3ide, Jr., /J @uciano, ;oe /#ris"ian 9.

/. %. <. >. &.

SUMMARY: *he CI- issued -evenue :emorandum 7rder /&1;/ and -evenue :emorandum Circular ><1;/ classifying #awnsho# o#erators as lending investors and hence lia"le to #ay &' #ercentage lending investorJs ta(. ursuant to these issuances, the CI- assessed :ichel J. 9huiller awnsho# Inc. for deficiency #ercentage ta(. 9huillier #rotested the im#osition and the validity of the issuances. 2hen the case reached the SC, the Court invalidated the Issuances and held that 9huillier is not a lending investor for #ur#oses of the im#osition of the &' lending investorJs ta(. DOCTRINE: *he CI- cannot issue administrative rulings or circulars not consistent with the law sought to "e a##lied. Administrative issuances must not override, su##lant, or modify the law, "ut must remain consistent with the law they intent to carry out. In ruling that 9huiller is not a lending investor for #ur#oses of im#osing the lending investorJs ta(, the Court looked at the intent of the law and held that 2hile it is true that #awnsho#s are engaged in the "usiness of lending money, they are not considered Flending investorsH for the #ur#ose of im#osing the &' #ercentage ta(es. FACTS: Commissioner of Internal -evenue 7ng issued Re&en#e Me!o(and#! O(de( BRMOC No. ,04;, im#osing a &' lending investorJs ta( on #awnsho#s. *his -:7 was clarified "y Re&en#e Me!o(and#! C%("#'a( BRMCC No. </4;,. Said -:C #rovides, among others@ /. In order to have a uniform cut1off date, avoid unfairness on the #art of the ta(1#ayers if they are re4uired to #ay on #ast transactions Y #awnsho# owners or o#erators shall "ecome lia"le to the lending investorJs ta( on their gross income "eginning Jan. /, /;;/ %. Since the deadline for filing of #ercentage ta( return and #ayment of ta( on lending investors in the first 4uarter of /;;/ has la#sed, ta(#ayers are given u# to Jan. <0, /;;/ to #ay ta( without #enalty. )ow, #awnsho# owners are considered as lending investors effective Jan. /, /;;/. Since they are classified as such, they are also su"$ect to documentary stam# ta(es #rescri"ed in *itle OII, *a( Code. 7n /;;G, #ursuant to these issuances, ,I- issued Assessment )otice against :ichel J. 9huiller awnsho# Inc. demanding #ayment of deficiency #ercentage ta( of <,<=0,<<&.// for /;;> inclusive of interest and surcharges. LHUILLIERLS PROTEST@ 9huiller filed and administrative #rotest "efore the 7ffice of -evenue -egional +irector, contendingB

)either *a( Code nor OA* 9aw e(#ressly im#oses &' #ercentage ta( on gross income of #awnsho#s awnsho#s are different from lending investors -:7 /&1;/ is not im#lementing any #rovision of the Internal -evenue 9aw "ut is a new and additional ta( measure on #awnsho#s which only Congress could enact -:7 /&1;/ im#liedly amends the *a( Code and is therefore ta(ation "y im#lication which is #roscri"ed -:7 /&1;/ is a class legislation since it singles out #awnsho#s among other lending and financial institutions

:eanwhile, the +e#uty ,I- Commissioner angani"an issued a 2arrant of +istraint andIor 9evy against 9huillierJs #ro#erty for enforcement and #ayment of assessed #ercentage ta(. Since its #rotest was unacted u#on, 9huillier sent a letter to the CI-. Still, its #rotest was not acted u#on. So 9huiller filed a )otice and :emorandum on A##eal with the C*A, invoking Sec. %%E, -A E>%>. CIRLS MOTION TO DISMISS@ CI- filed with the C*A a motion to dismiss on the ground that it did not state a cause of action, as there was no action yet on the #rotest LHUILLIERLS OPPOSITION TO THE MOTION TO DISMISS @ 9huillier o##osed the motion to dismiss and moved for the issuance of a writ of #reliminary in$unction #raying that the ,I- "e en$oined from enforcing the warrant of distraint and levy. CTA DECISION@ *he C*A first denied the motion to dismiss and granted 9huillierJs motion for #reliminary in$unction. 7n the merits, the C*A ruled in favor of 9huillier and held@ /. -:7 /&1;/ and -:C ><1;/ as )U99 A)+ O7I+ as they classify #awnsho#s as lending investors su"$ect to &' #ercentage ta( %. Assessment )otice cancelled, withdrawn, and with no force and effect CA DECISION@ *he CI- went to the CA via #etition for review. Aowever, the CA affirmed the C*A decision. PETITION FOR RE*IE+ ON CERTIORARI )Y THE CIR @ *he CI- then a##ealed to the SC, arguing@ /. CA erred in holding that #awnsho#s are not su"$ect to &' lending investorJs ta( a. Sec. //= *a( Code im#oses &' #ercentage ta( on lending investors ". 9egal definition of lending investors in Sec. /&G(u! of the *a( Code is "road enough to cover #awnsho# o#erators

c. %. <.

Sec. < of + //> states that #rinci#al "usiness activity of a #awnsho# is lending money d. Aence, a #awnsho# easily falls under the definition -:7 /&1;/ and -:C ><1;/ are valid a. *hey need not "e #u"lished "eing mere inter#retations of the )I-C CI- v. Agencia C(4uisite of ,ohol held that a #awnsho# is su"$ect to &' lending ta( II.

,. *his #ower was "estowed "y then Sec. %>& )I-C of /;GG, as amended "y C7 %G< C. A72COC-, the CI- cannot issue administrative rulings or circulars not consistent with the law sought to "e a##lied /. Administrative issuances must not override, su##lant, or modify the law, "ut must remain consistent with the law they intent to carry out awnsho#s are )7* considered lending investors for the #ur#ose of im#osing #ercentage ta(. *he CI- Issuances are invalid A. *he CI- argues that "oth issuances are mere rules and regulations im#lementing Sec. //=G, )I-C /. ,ut it is clear from the said #rovision that #awnsho#s are )7* s#ecifically included ,. At this #oint the SC noted that "oth #arties, the C*A, and the CA, refer to the )I-C as the *a( Code "ut did not s#ecify the s#ecific #rovision or law ()I-C /;GG or )I-C /;E=! /. *he citation of the s#ecific Code is im#ortant to determine the intent of the law a. )I-C /;GG as amended "y C7 %G< is a later law than )I-C /;E= ". )I-C /;E= was amended "y + /;;/, /;;>, %00=, and %0</ %. Sec. /&G(u! of )I-C /;E=, as amended, defines Flending investorH as Fall #ersons who make a #ractice of lending money for themselves or others at interestH <. + //> defines a #awnsho# as Fa #erson or entity engaged in the "usiness of lending money on #ersonal #ro#erty delivered as security for loans and shall "e synonymous, and may "e used interchangea"ly, with #awn "roker or #awn "rokerageH C. 2hile it is true that #awnsho#s are engaged in the "usiness of lending money, they are not considered Flending investorsH for the #ur#ose of im#osing the &' #ercentage ta(es, for the following reasons@ 1. FI-S*@ Under Sec. /;%, #ar. <, su"1#ar. (dd! and (ff!, )I-C /;GG (#rior to its amendment! and Sec. /=/, #ar. %, su"1#ar. (dd! and (ff!, )I-C /;E=, #awnsho#s and lending investors were su"$ect to different ta( treatmentsE
J

ARGUMENST OF LHUILLIER@ 7n its #art, 9huillier argues@ /. ,efore and after the amendment of the *a( Code "y C7 %G<, which took effect on Jan / /;EE, #awnsho#s and lending investors were su"$ect to different ta( treatments a. awnsho#s L to #ay a fi(ed ta( of only /,000 ". 9ending investors L &' #ercentage ta( on gross income #lus fi(ed annual ta(es %. Aence, from A#ril /;E% L +ec /;;0, CI- consistently ruled that a #awnsho# is not a lending investor <. -:7 /&1;/ and -:C ><1;/ are invalid a. *hey are not im#lementing rules "ut are new and additional ta( measures, which only Congress can do ". *hey have never "een #u"lished as well >. awnsho#s are strictly regulated "y the Central ,ank #ursuant to the awnsho# -egulation Act or +//> a. *here is no s#ecial law governing lending investors ". +ue to the wide differences "etween the %, #awnsho#s had never "een considered as lending investors for ta( #ur#oses &. C(#ressio unius est e(clusion alterius a. It was not the intention of 9egislature to im#ose #ercentage ta(es on #awnsho#s ". If it were so, it would have "een included as among the "usiness su"$ect to ta( c. *here can never "e a ta(ation "y im#lication ISSUE@ 27) #awnsho#s are su"$ect to the &' lending investorJs ta( RULING: )7. awnsho#s are not lending investors for the #ur#oses of im#osing &' lending investorJs ta(. *he assailed issuances are invalid for not conforming to law and for lack of #u"lication. RATIO@ I. C(tent of the #ower of the Commissioner of Internal -evenue in making rules A. -:7 /&1;/ and -:C ><1;/ were issued in accordance with the #ower of the CI- to make rulings and o#inions in connection with the im#lementation of internal revenue laws

SCC. //=. ercentage ta( on dealers in securitiesB lending investors. 1 +ealers in securities and lending investors shall #ay a ta( e4uivalent to si( (=! #er centum of their gross income. 9ending investors shall #ay a ta( e4uivalent to five (&'! #ercent of their gross income. 0 (<! 7ther Fi(ed *a(es. L *he following fi(ed ta(es shall "e collected as follows, the amount stated "eing for the whole year, when not otherwise s#ecified@

%.

<.

>.

SCC7)+@ Congress never intended #awnsho#s to "e treated in the same way as lending investors a. Sec. //=, )I-C /;GG, was "asically lifted from Sec. /G& )I-C; /;E= which treated "oth ta( su"$ects differently ". ,oth )I-C /;GG and )I-C /;E= dealt with #awnsho#s and lending investors differently c. It was the intent of Congress to deal with "oth su"$ects differently (/! Aence, we must conform to this legislative intent *AI-+@ Sec. //=, )I-C /;GG as amended, su"$ects to #ercentage ta( dealers in securities and lending investors only. *here is no mention of #awnsho#s a. C(#ressio unius rule a##lies ". If a statute enumerates the things u#on which it is to o#erate, everything else must necessarily and "y im#lication "e e(cluded from its o#eration and effect F7U-*A@ ,I- had ruled several times #rior to the issuance of -:7 /&1;/ and -:C ><1;/ that #awnsho#s were not su"$ect to &' #ercentage ta( as im#osed "y Sec. //=, )I-C /;GG as amended a. Since Sec. //=, )I-C /;GG as amended was #ractically lifted from Sec. /G& of )I-C /;E= as amended, there is no change in law and the inter#retation thereof should not have "een altered

Inter#retative rule L designed to #rovide guidelines to the law which the administrative agency is in charge of enforcing C. 2hen the admin rule is merely inter#retative, its a##lica"ility needs nothing further than its "are issuance +. ,U* when the admin rule goes "eyond merely #roviding for the means that can facilitate or render least cum"ersome the im#lementation of the law "ut su"stantially increases the "urden of those governed, it "ehooves the agency to accord at least to those directly affected a chance to "e heard, and thereafter to "e duly informed, "efore that new issuance is given the force and effect of law C. -:C /&1;/ and -:C ><1;/ are not im#lementing rules. /. *hese are in the nature of amendatory #rovisions which the CI- cannot do %. 2ithout these issuances, #awnsho#s would not "e lia"le to #ay the &' #ercentage ta(, considering that they were not s#ecifically included to "egin with DISPOSITI*E@ etition is +IS:ISSC+. /. -:7 /&1;/ and -:C ><1;/ are here"y declared null and void %. 9huillier is not lia"le to #ay the &' lending investors ta(

%.

III. *he CI- Issuances are also invalid for lack of #u"lication A. 2hile the rule1making authority of the CI- is not dou"ted, the CImay not disregard legal re4uirements or a##lica"le #rinci#les in the e(ercise of 4uasi1legislative #owers ,. +istinguish % kinds of administrative issuances@ /. 9egislative rule L in the nature of su"ordinate legislation, designed to im#lement a #rimary legislation "y #roviding the details thereof Y. (dd! 9ending investors L /. In chartered cities and first class munici#alities, one thousand #esosB %. In second and third class munici#alities, five hundred #esosB <. In fourth and fifth class munici#alities and munici#al districts, two hundred fifty #esos@ rovided, *hat lending investors who do "usiness as such in more than one #rovince shall #ay a ta( of one thousand #esos. Y. (ff! awnsho#s, one thousand #esos (underscoring ours! 9 Sec. /G&. ercentage ta( on dealers in securities, lending investors. 11 +ealers in securities shall #ay a ta( e4uivalent to si( (='! #ercent of their gross income. 9ending investors shall #ay a ta( e4uivalent to five (&'! #ercent of their gross income. (As amended "y .+. )o. /G<;, .+. )o. /;&; and .+. )o. /;;>!.

CIR &. )ENGUET CORPORATION

Ju y ,, 2??5 Tinga, J @uciano, ;oe /#ris"ian 9. /on%using case *us" because : #a3e no idea #o$ 1AT $or(s.

+e#uty CI- Santos issued a OA* -uling <GEE1EE (First OA* -uling! which declared that the sale of gold to Central ,ank is considered as e(#ort sale su"$ect to 8ero1rate #ursuant to Sec. /00, *a( Code, as amended. *he ,I- came out with at least = other issuances reiterating the 8ero1rating of sale of gold to Central ,ank. -elying on its 8ero1rated status and the ,I- issuances, ,enguet sold gold to the Central ,ank during Aug /;E; to July /;;/ and entered into transactions that resulted in in#ut OA* incurred in relation to the su"$ect sales of gold. ,enguet then filed ta( refundsIcredits corres#onding to these in#ut OA*. *hese a##lications were either unacted u#on or e(#ressly disallowed. CI- issued deficiency assessment against ,eguent when, after a##lying ,enguetJs credita"le in#ut OA* costs against the retroactive /0' OA* levy, there resulted a "alance of e(cess out#ut OA*. *he "asis of the disallowances and the deficiency assessment was a ,I-uling ,I- OA* -uling 00E1;% (Second OA* -uling!. *his OA* -uling was issued on January /;;% L subse8uen" to the consummation of the sales of gold to Central ,ank. According to the OA* -uling, sales of gold to the Central ,ank shall not "e considered as e(#ort sales and thus su"$ect to /0' OA*. *his ,I- -uling withdraw, modified, and su#erseded all inconsistent ,I- issuances. *he ,I- also issued OA* -uling 0&;1;% and -evenue :emorandum 7rder )o. %%1;% which decreed that the revocation of the First OA* -uling "y the Second OA* -uling would not unduly #re$udice mining com#anies and could "e a##lied retroactively. PETITIONS FOR RE*IE+ )EFORE THE CTA @ ,enguet filed < se#arate #etitions for review "efore the C*A. It argued that a retroactive a##lication of the Second OA* -uling would violate Sec. %>= )I-C which mandates the non1 retroactivity of rulings or circulars issued "y the CI- that would o#erate to #re$udice the ta(#ayer. ,enguet discussed how it was #re$udiced. ANS+ER )Y CIR: *he CI- maintained that the Second OA* -uling is not void and entitled to great res#ect since it was issued "y the "ody charged with the duty of administering the OA* 9aw. *he Second OA* -uling may "e given retroactive effect since it was not #re$udicial to ,enguet. CTA DECISIONS@ the C*A dismissed the #etitions. purc#ases "#a" re a"e "o "#ose sa es. T#is is in con"ras" "o i% you se on y e!e'p" goods or ser3ices, $#ere you canno" nor'a y rec ai' 1AT on your purc#ases.

SUMMARY: ,enguet Cor#oration a##lied for and was granted "y the ,I8ero1rated status on its sale of gold to Central ,ank. -elying on this 8ero1rated status, ,enguet entered into transactions with the Central ,ank that resulted in in#ut OA* incurred in relation to the su"$ect sales of gold. *he CI- issued deficiency assessment against ,enguet when, after a##lying ,enguetJs credita"le in#ut OA* costs against the retroactive /0' OA* levy, there resulted a "alance of e(cess out#ut OA*. *he "asis of the disallowances and the deficiency assessment was a ,I- -uling ,I- OA* -uling 00E1;% which was issued su"se4uent to the consummation of the sales of gold to Central ,ank. ,enguet #rotested alleging that the retroactive a##lication was #re$udicial to it. *he SC agreed and held that ,enguet should not "e ta(ed at /0'. DOCTRINE: -ulings, circulars, rules, and regulations #romulgated "y the CIwould have no retroactive a##lication if to so a##ly them would "e #re$udicial to the ta(#ayer . -emem"er that the ta(#ayer has the o#tion not to take on any OA* #ayment for his transactions "y e(ercising his right to #ass on the OA* costs. In this case, the retroactive a##lication of the Second OA* -uling unilaterally forfeited or withdrew this o#tion from ,enguet. 2hile it is true that the government is not esto##ed from collecting ta(es which remain un#aid on account of the errors or mistakes of its agents andIor officials and there could "e no vested right arising from an erroneous inter#retation of the law. *hese #rinci#les must give way to e(ce#tions "ased on and in kee#ing with the interest of $ustice and fair#lay. FACTS: Under Sec. ;; )I-C, as amended "y C7 %G< (/;EG!, then in effect, any #erson who, in the course of trade or "usiness, sells, "arters or e(changes goods, renders services, or engages in similar transactions and any #erson who im#orts goods is lia"le for out#ut OA* at rates of either /0' or 0' (.8ero1rated.! de#ending on the classification of the transaction under Sec. /00 of the )I-C. ersons registered under the OA* system are allowed to recogni8e in#ut OA*, or the OA* due from or #aid "y it in the course of its trade or "usiness on im#ortation of goods or local #urchases of goods or service, including lease or use of #ro#erties, from a OA* registered #erson. In Jan /;EE, ,enguet Cor#oration a##lied for and was granted "y the ,I- 8ero1rated/0 status on its sale of gold to Central ,ank.
1F

: researc#ed and apparen" y "#ere are so'e goods and ser3ices "#a" are zerora"ed. T#is 'eans "#a" "#eyBre "a!ab e %or 1AT, bu" "#e 1AT ra"e is zero per cen". :% you se zero-ra"ed goods or ser3ices, you can genera y rec ai' 1AT on any

It held that no #re$udice had "efallen ,enguet "y the retroactive a##lication of the Second OA* -uling. Aence, no violation of Sec. %>=. CA DECISION ON APPEAL@ ,enguet a##ealed to the CA. *he CA reversed the C*A. It held@ /. ,enguet suffered financial damage e4uivalent to the sum of the disa##roved claims a. Aad ,enguet known that such sales were su"$ect to /0' OA* (which rate was not the #revailing rate at the time of transaction!, ,enguet would have #assed on the cost to Central ,ank %. -emedies which the C*A su##osed would eliminate any resultant #re$udice to ,enguet were not sufficient #alliatives as the monetary values #rovided in the su##osed remedies do not a##ro(imate the monetary values of ta( credits that ,enguet lost after im#lementation of the Second OA* -uling. Aence, CI- filed the instant etition for -eview, 4uestioning the CA decision. ISSUE: 27) ,enguetJs sale of gold to Central ,ank during the #eriod when such was classified "y ,I- Issuances as 8ero1rated could "e ta(ed validly at a /0' rate after the consummation of the transactions involved RULING@ )7, it cannot "e validly ta(ed. *he retroactive a##lication of the OA* -uling is #re$udicial to ,enguet and hence should not "e a##lied to it. RATIO@ I. 7n the validity of the Second OA* -uling A. *he SC held that it need not rule on the validity of the assailed OA* -uling ,. *he Court need not invalidate the ,I- issuances which have the force and effect of law, unless the issue of validity is so crucially at the heart of controversy that the Court cannot resolve the case without having to strike down the issuances. C. *he very lis mota of the case is whether the Second OA* -uling may validly "e given retroactive effect

C. In transactions ta(ed at /0' rate@ /. 2hen at the end of any given ta(a"le 4uarter the out#ut OA* e(ceeds the in#ut OA*, e(cess shall "e #aid to the government %. 2hen in#ut OA* e(ceeds out#ut OA*, e(cess would "e carried over to OA* lia"ilities for the succeeding 4uarter or 4uarters +. 7n the other hand, transactions which are ta(ed at 8ero1rate do not result in any out#ut ta( /. In#ut OA* attri"uta"le to 8ero1rated sales could "e refunded or credited against other internal revenue ta(es at the o#tion of the ta(#ayer C. In "oth situations, the ta(#ayer has the o#tion not to carry any OA* cost /. In a 8ero1rated transaction, ta(#ayer is allowed to recover in#ut ta( from the ,I- without need to #ay out#ut ta( %. In a /0' rated OA*, the ta(#ayer is allowed to #ass on "oth in#ut and out#ut OA* to the "uyer <. Aence, the ta(#ayer has the o#tion not to take on any OA* #ayment for his transactions "y e(ercising his right to #ass on the OA* costs III. ,enguet will "e #re$udiced with the retroactive a##lication of the Second OA* -uling A. -ulings, circulars, rules, and regulations #romulgated "y the CIwould have no retroactive a##lication if to so a##ly them would "e #re$udicial to the ta(#ayer /. In this case, "oth ,enguet and CI- agree that the retroactive a##lication of the Second OA* -uling is valid only if such a##lication would not "e #re$udicial to ,enguet, #ursuant to Sec. %>= )I-C ,. +etermination of 27) ,enguet had suffered #re$udice is a factual issue /. *he SC is not a trier of facts %. In the e(ercise of the SCJs #ower of review, findings of facts of the CA are conclusive and "inding on the SC a. CSCC * when findings of fact a 4uo are conflicting ". 9ike in the case at "ar C. -emem"er that the ta(#ayer has the o#tion not to take on any OA* #ayment for his transactions "y e(ercising his right to #ass on the OA* costs. In this case, the retroactive a##lication of the Second OA* -uling unilaterally forfeited or withdrew this o#tion from ,enguet /. CFFCC*@ ,enguet "ecame the une(#ected and unwilling de"tor to the ,I- of the amount e4uivalent to the total OA* costs of its #roduct

II. +iscussion on OA* (Ta(e no"e o% "#ese princip es since i" is re e3an" "o "#e 'ain issue> A. OA* is a #ercentage ta( im#osed at every stage of the distri"ution #rocess on the sale, "arter, e(change, or lease of good or #ro#erties and rendition of services in the course of trade or "usiness, or the im#ortation of goods. ,. OA* is an indirect ta(, which may "e shifted to the "uyer, transferee, or lessee of the goods, #ro#erties, or services /. *he #arty directly lia"le for the #ayment of the ta( is the seller

a.

%.

A lia"ility it #reviously could have recovered from the ,Iin a 8ero1rated scenario or at least #assed on to the Central ,ank had it known that it would have "een ta(ed at a /0' rate Aence, ,enguet suffered economic #re$udice when its consummated sales of gold to the Central ,ank were taken out of the 8ero1rated category

IO. ,enguet cannot "e faulted for relying on the ,I-Js inter#retation of laws and regulations A. At the time when the su"$ect transactions were consummated, the #revailing ,I- regulations relied u#on "y ,enguet ordained that gold sales to Central ,ank were 8ero1rated ,. *he ,I- inter#reted@ /. Sec. /00 )I-C in relation to Sec. % C7 &E/ which #rescri"ed that gold sold to the Central ,ank shall "e considered e(#ort and therefore shall "e su"$ect to the e(#ort and #remium duties %. ,I- also considered Sec. /=; Central ,ank Circular )o. ;=0 which states that all sales of gold to the Central ,ank are considered constructive e(#orts C. 2hile it is true that the government is not esto##ed from collecting ta(es which remain un#aid on account of the errors or mistakes of its agents andIor officials and there could "e no vested right arising from an erroneous inter#retation of the law /. *hese #rinci#les must give way to e(ce#tions "ased on and in kee#ing with the interest of $ustice and fair#lay %. Cvery #erson must, in the e(ercise of his rights and in the #erformance of his duties, act with $ustice, give everyone his due, and o"serve honesty and good faith DISPOSITI*E: etition +C)IC+. CA +ecision AFFI-:C+. ,enguet suffered financial damage e4uivalent to the sum of the disa##roved claims "y the retroactive a##lication of the ,I- OA* -uling.

TAXATION 1 | B2015 CASE DIGESTS

3;